Polish builders facing mergers or state control

By bne IntelliNews October 10, 2012

bne -

Poland continues to struggle to prevent several of its biggest construction companies from toppling like dominoes. That could lead to a super-sized merger, claims the CEO of builder PBG, while the treasury minister says the state may be forced to take a controlling interest in Polimex.

The claim from Wieslaw Rozacki, in an interview published on October 9 by Dziennik Gazeta Prawna, comes hot on the heels of an admission from Treasury Minister Mikolaj Budzanowski that the state may need to take a controlling interest in the country's other large builder, Polimex.

Both companies are struggling on the back of loss-making contracts on infrastructure projects built in advance of the Euro 2012 football championships that Poland co-hosted in the summer. After much internal ideological debate, the government is now scrambling to prevent a full-scale collapse, which would hit the economy thanks to the PLN60bn the sector owes to the banks. Warsaw's grand plans to increase energy independence would also suffer without local companies capable of building the new infrastructure planned.

"We are right now talking about several vital entities for the Polish economy," Rozacki said, according to Reuters, although he offered little detail on the plan save that it would involve state development agency ARP, which has been at the forefront of efforts to dig the builders out of their hole. PBG entered bankruptcy in June.

He declined to say, however, whether the discussion includes Polimex, which the treasury has become heavily involved in trying to save due to its strategic role in planned power projects.

Budzanowski has been busy persuading creditors to hold back on claims - "We reached an understanding in regard to the principles of business relations between two big banks concerning a high-risk investment of strategic importance to the state," he told Rzeczpospolita in an interview - and arranged for ARP to buy a stake of around 33%.

However, he admits that might not be enough, especially given that one small company has broken ranks. While the likes of banking monoliths PKO and Pekao have agreed with Budzanowski to hold back on debt of around PLN2.5bn, according to the Financial Times, a subcontractor called Eurometal has filed a request for Polimex to be placed into bankruptcy on the back of a PLN600,000 unpaid bill.

"We are thinking about taking a controlling stake in Polimex," Budzanowski said. "The thing is to be able to oversee the restructuring process and to be able to join in discussions with banks. That is why we are sending our representative to the board. Today, the most important is for the company to straighten out, sell off non-essential holdings and sign new energy contracts."

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