Polish builders still struggling for a survival plan

By bne IntelliNews September 3, 2012

Tim Gosling in Prague -

Polish construction group Polimex announced plans for a new share issue, as well as asset sales and a request for a government loan, on August 31. The plan to put its funding back in order was outlined as the sector unveiled huge losses in the first half of 2012, illustrating the depth of the crisis among the country's builders.

Overall, Polimex plans to issue shares worth PLN500m (€121m), CEO Robert Oppenheim said, and raise a further PLN490m via asset sales and a loan from state development agency ARP. It will also ask for prepayments on contracts, but now claims it does not need to find a strategic investor. "Selling assets worth PLN330m, a PLN160m loan from ARP, a share issue and prepayments for contracts, and we have a new life," Oppenheim predicted optimistically, according to Reuters. Earlier reports in the local media suggested the company would offer the shares to creditors as a debt-to-equity swap.

The plan was announced as Polimex reveled a net loss of PLN370m for the first half of 2012, compared with a net profit of PLN26m a year ago. The company is one of several Polish construction firms struggling in the wake of the €20bn infrastructure push ahead of June's Euro 2012 football championships. The sector was caught out by strong competition on tenders that shaved margins razor thin, and then collapsed them as materials costs rose.

Polimex peer PBG, which entered bankruptcy protection in June, reported a whopping net loss of some PLN1.7bn for the first half of 2012 on September 1. The loss was exacerbated by asset write-downs that it claims were motivated by a conservative and responsible approach to liquidity issues. In a statement, PBG said cash problems have led to standstills on some contracts, adding that the write-downs also take into account potential penalties should it be forced to terminate contracts. "In a situation of such great uncertainty and volatility, the management decided to take a very conservative approach to the valuation of its assets and decided to take significant writedowns," PBG said, according to Reuters. "The conservative approach was kept also in the case of assessing risk on contracts."

PBG also asked ARP for a rescue package in late June. The company is in the midst of a restructuring of subsidiaries, and has seen assets sold from under it by creditors - PBP Bank sold shares in the Hydrobudowa subsidiary, which it held as collateral, in early August. At the same time, PBG is chasing the government for late payments on contracts, including for the centerpiece of Euro 2012, the National Stadium in Warsaw.

Knock-on effects

The government has been debating ideas for helping the builders out of their hole, under pressure from the banks, which are reported to have PLN60bn loaned to the sector. Investment funds are also facing huge losses on construction sector bonds, while equity investors have seen the share prices of the builders tumble. On top of that, the sector is reported to represent 7% of GDP, and employs around 700,000.

The government is also thought to be concerned over the effect that the crisis in the sector will have on its drive to increase energy security. The construction sector is a vital cog in Poland's push to build new power stations and develop its hydrocarbon reserves. However, the government of Prime Minister Donald Tusk has not managed to agree on a plan.

Polimex's announced plan appears to contradict suggestions from the CEO that the company is looking at taking on a strategic investor. Earlier in the week, Oppenheimer told Reuters that Polimex was in talks with potential investors as part of its bid to stay afloat. Media reports mentioned Russia's VIS Construction and local rival NDI as possible candidates.

Meanwhile, Polimex is looking to offload units including Energomontaz Polnoc, Sefako and Torpol for at least PLN200m, and save PN183m through job cuts and other economies. million in savings this year. Oppenheim said the company already has five offers for Sefako and several for Energomontaz Polnoc.

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