Romanian chemical company Oltchim, which is currently under insolvency procedures, announced on December 10 that it has completed the procedures to sell the largest part of its operating assets to Chimcomplex Borzesti, the sole bidder for the assets.
State-controlled Oltchim became insolvent in 2013 and several privatisation attempts have failed since then. The deal with Chimcomplex, controlled by local investor Stefan Vuza, may now mark the emergence of a strong regional player. The main opportunity is the strong domestic demand, as shown by Romania's large imports of chemical products. The threats are related to the need to consolidate two entities with visibly different cultures, but Vuza has strengthened the management by bringing experts with international exposure into his team for the first time.
One year after the creditors agreed on the deal with Chimcomplex, completion of the sale of the largest part of Oltchim finally puts an end to the five-year saga of failed privatisation and a fierce struggle for recovery.
Oltchim creditors approved the sale of asset bundles to Chimcomplex in December 2017. A smaller bundle of assets was sold to another buyer: fellow local investor Dynamic Selling Group (DSG) agreed to pay €1.9mn for the construction materials division of Oltchim. Oltchim’s non-operating assets are still for sale.
In June, the European Commission endorsed the deal and in November Romania’s Competition Council approved the deal as well. Out of the 2,200 employees at Oltchim, 1,164 have agreed to sign labour contracts with Chimcomplex.
The last step of the process was the payment of the €127mn by the buyer. Chimcomplex also pledged to invest €70mn for the environmental cleansing of the production site.
Chimcomplex struggled to get financing for the deal, which will remain important in the future. The buyer initially disclosed it had secured the support of a broad range of partners including US based Tricon Energy as a trading partner, five European banks co-ordinated by ING Bank N.V. as financing partners and two investment funds, Amerocap and ADM Capital. Four other business partners, two in Romania and the other two in Italy and Turkey, were mentioned by Chimcomplex officials at the time they submitted the bid in July 2017. But eventually, as reported by G4media, it managed to attract financing from Russia’s VTB Europe, a subsidiary of Russian bank VTB headquartered in Frankfurt, which reportedly put up the largest share of the financing, and Credit Suisse, which was highly important for repetitional reasons.
Oltchim's creditors will get back only part of their money after the sale of the operating assets. The market value of Oltchim's assets on sale was evaluated in July 2017 at €294mn and the starting price in the auction for all its assets was set at €307mn. The debt owed by Oltchim to its creditors is RON3.45bn (€800mn), out of which RON900mn is guaranteed, RON1.28bn is to go to state budgets and RON1.25bn is non-guaranteed debt. Out of the recipients of guaranteed debt, the largest are local banks BCR (RON230mn) and Banca Transilvania (RON160mn), and power company Electrica (RON227mn).
The takeover is likely to result in a stronger company, but the challenges are high as well. The two companies have very similar industrial profiles: both were designed as vertically-integrated chemical platforms supplied with feedstocks from nearby refineries (Arpechim for Oltchim and Rafo for Chimcomplex). They were designed in the 1960s by the communist regime and gradually developed. But the two had different destinies after the fall of communism.
Oltchim remained in the state’s hands with an allegedly corrupt management — creditors sued former Oltchim CEO Constantin Roibu who headed the company from 1991 to 2007, claiming €500mn was siphoned out of the company, but they lost in court — as well as a hostile minority shareholder, German PCC SE, the owner of PCC Rokita of Poland. PCC SE’s stake in Oltchim surged from 4% to 12% in 2007 when the state reversed a capital increase made in 2003 but challenged in court by PCC SE. The court admitted PCC’s request to reverse the capital increase in 2005. In 2011, Cyprus-based Nachbar Resources, controlled by Carlson Ventures, bought a 12% stake in Oltchim from SIF Oltenia. PCC SE went on to purchase more Oltchim shares, and in 2013 Nachbar acquired a 32% blocking stake.
In contrast, Chimcomplex was privatised in 2003 to a network of companies controlled by Vuza, an investor who took advantage of the opportunities generated by the privatisation of industrial assets during 1999-2004.
The merger is expected to face significant problems resulting from the different sizes and different technology used (Oltchim invested heavily despite the poor financial discipline). Chimcomplex is much smaller in size (it boasts only a quarter of Oltchim’s total revenues) but more profitable, measured by 2017 financials.
The making of a chemicals empire
The Oltchim deal is a big step for Vuza after two decades of acquisitions. The businessman is 49 years old and his wealth is estimated at €135mn-€138mn, according to Forbes 2017, though it has been valued at up to €175mn by other sources.
Back in 1988, Vuza enrolled in a military school in Pitesti, many of whose graduates were produces tank officers, but that also specialised in intelligence. In 1990, a year before his expected graduation, he got permission from the ministry of defence to enrol in the Academy of Economic Studies (ASE) in Bucharest, choosing the faculty of International Economic Relations. Vuza graduated from the ASE in 1994, already having secured a job as the manager of the state owned Durau mountain resort. While still working at Durau, he started a larger business investing in retail spaces: small wood and glass buildings placed on rented land and let to retailers at a time when there was no modern trade in Romania — the first hypermarket, Carrefour, arrived in 2000. He developed this business with his friends.
Vuza set up Serviciile Comerciale Romana (SCR) in 1993, initially as a limited liability company that was turned in 1994 into a share company in order to get trade credit more easily: companies were more impressed with the share companies (SAs), than limited liability firms (SRLs). Until 1999, the core business was opening commercial centres in Romania’s Moldova region.
In 1999, Vuza made the decision to enter the industrial sector. First he bid for Contactoare Buzau, which was being privatised by the state. He says that he focused on industrial companies that other investors did not care too much about because of the debts accumulated before their privatisation and because of the high number of employees. Contactoare Buzau in turn purchased Sinterom Cluj, also in 1999. This was when Vuza settled in Cluj Napoca, a city in central Transylvania with more links to Budapest than Bucharest.
Vuza went on to develop a network of firms starting from Sinterom, which set up A2 Impex, which purchased Uzuc Ploiesti, a firm specialised in the production of chemical equipment. In 2003, A2 Impex bid for 95% of Chimcomplex and won. In the same year A2 Impex won the auction for Iasitex textile factory, an important supplier for Ikea.
Chimcomplex is now part of Vuza’s unusual corporate structure. It is 87.8% controlled by a limited liability company recently re-named CRC Impex Chemicals SRL (CRC standing for Compania Romana de Chimie). As of now, it is directly 91.3% owned by Vuza, with an 8.7% stake held by Serviciile Comerciale Romane (SCR), Vuza’s main holding company. CRC was owned by other firms in Vuza’s group until 2017. CRC still owns Iasitex, but it is currently in the process of spinning off the textile business to a separate entity. Eventually, Vuza will control Chimcomplex through a limited liability company with capital of some €11mn.
Chimcomplex is now seeking to strengthen its management in line with the new challenges. The new managing board at Chimcomplex marks a new, higher stage of the business: it includes international experts, bringing expertise and credibility. At the same time, it marks the full involvement of Vuza in the business — he becomes the head of the managing board. He also becomes the sole owner of A2 Impex.
The new managing board of Chimcomplex includes Vuza as president, Virgiliu Bancila as vice president and three members.
Among them is Ion Sturza, a Moldovan businessman with wealth of €40mn, as well as being a former prime minister of neighbouring Moldova. He developed businesses in Romania including marketplace elephant.ro and an IT business incubator in Cluj Napoca. He enjoys high credibility and a good reputation, and possesses broader vision given his regional expertise. This was a surprising move to the industrial sector for Sturza.
Another member is investment banker Ilinca von Derenthall, who previously served as managing director and head of Central Europe at LGT Bank Austria, the bank owned by the Princely House of Liechtenstein. Ilinca was born and raised in Bucharest, where he attended the German High School and the Faculty of Physics until 1990, after which he emigrated to Germany, where he studied economics at JW von Goethe University in Frankfurt am Main and started a career at KPMG, later moving to investment banking in the teams of German banks BHF and Schaal Oppenheim.
The third member of Vuza’s team is Liviu Cojoc, a businessman with wealth estimated at €10mn. Cojoc holds the majority stake (73.84%) in Dafcochim, whose main activity is the wholesale of chemical products. Established in 1994, the company became one of the most important players in the Transylvanian market. Dafcochim is currently selling a wide range of chemicals for industry and agriculture. The most important products marketed by Cojoc's company are chemical products for industry, pesticides, chemical fertilisers, plus pool care and cleaning products and transport services for hazardous chemicals. Of these, pesticides brought Cojoc about 50% of his 2010 revenue.