Latvian government prepares for Liepajas Metalurgs bankruptcy.

By bne IntelliNews June 19, 2013

The government has approved an action plan for the possible bankruptcy of distressed Liepajas Metalurgs metallurgy major, delfi.lv portal reports. The financial value of the plan was not disclosed but reportedly it involves training and employing more than 2,000 workers at LM. EconMin Daniels Pavluts commented that the plan was currently only informative. Consultations with conflicting shareholders Sergeis Zaharins, Ilya Segal, and Kirov Limpman continue. At the same time there is interest in LM from three investors, the ministry said.

LM posted LVL 10.1mn (EUR 14.4mn) losses in Q1/13 vs. LVL 0.52mn profit for Q1/12. The loss was attributed to unfavourable situation in the global metallurgy market and a lack of operational funds in the company.

The shareholders of LM had to decide on either selling their shares or investing in the company’s bail-out by May 31 but they failed to agree on a specific line of action. EconMin Daniels Pavluts previously argued that insolvency is inevitable should the shareholders of the company ignore the requirements put forward by the lenders and the government. He reiterated that the government was “puzzled” by the hesitations on the shareholders’ behalf.   

In order for the government to get involved into the bail-out of LM, the shareholders of the company have to invest LVL 25mn (EUR 35.57mn). The government has also set other conditions which include re-electing the board, coming up with a viable business plan, refinancing the EUR 1.7mn loan to UniCredit, and changing the suppliers’ structure. State support in case of complying with the conditions would amount to LVL 33mn in the form of loans from state-controlled institutions.

According to a report by nozare.lv, shutting down LM would translate into losing 1.2%-1.5% of GDP, as the company is one of the largest employers, taxpayers, and exporters. Company paid 0.22% of total tax revenues in 2012, with directly or indirectly involving 39% of economically active population of the city of Liepaja.

The latest industrial output data show that the crisis in Liepajas Metalurgs has already influenced the output figures: in March, basic metals output declined by 36% y/y and fabricated metal products went down by 2.6% y/y. Total industrial output decreased by 2.9% y/y in March , following a 1.9% y/y drop in February, when was also reported the first y/y decline of the indicator since the end of 2009.

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