Czech Steel Is Afloat Once Again

November 2013 | Companies and Markets

Employees at the Pilsen Steel Mill are back to work, having stopped production in the middle of June. Half of the 900 plant’s employees are back at the machines again and the other half will resume within the next month. Full production is planned to start in late November. This was all possible thanks to financial support from the KKCG Investment Group, owned by billionaire Karel Komarek.

Since the mill shut down, the Czech press has been circulating a lot of rumors about the plant going bankrupt, which the Pilsen management has been trying in vain to refute.

“The Czech investment group gave us a loan in early October, with which we re-started production,” said Pavel Ratislav, Director of Human Resources for Pilsen Steel. “Production is now gradually gaining momentum. All workflows are controlled by the creditors’ committee which sanctions important changes.”

At present, the steel mill employs 893 people. Half of them are still sitting at home, receiving 80% of their standard wages. Over the past six months, 40 employees resigned. The management at Pilsen Steel anticipates that by the end of 2013, the number of employees will fall to 750 as production is optimized. Management at the mill and the creditors’ committee feel that these are necessary measures and without them the Pilsen Steel Mill would not be able to reorganize itself. Despite the company’s optimistic forecasts, there still aren’t enough orders: They have lost their reputation because there were too many rumors about bankruptcy and the mill’s reorganization.

The decision to reorganize the mill was made by the Pilsen Regional Court on October 18, 2013. At that time, a plan for reorganization was approved that takes into account the votes of the creditors. Out of the 362 creditors, 104 voted for the reorganization, 8 voted against it, and the remainder did not participate in the vote. The arguments from creditors that voted for bankruptcy were rejected as not in line with Czech legislation and legal norms.

Jan Valek, a spokesperson for Lenox, one of the creditors who voted for the bankruptcy, said that the current owner of the plant doesn’t deserve a second chance: “The reorganization will only result in one thing – the company’s management will remain in place and creditors will lose 99% of their investments. Pilsen Steel needs to declare bankruptcy and sell; then a new owner could demonstrate more reasonable management decisions.” Lenox supplied ore to the Pilsen mill. Their stake is 156 million koruna (€6 million), of which only 1% has been repaid as a result of the reorganization. “It’s a pity that the court didn’t declare Pilsen Steel bankrupt a year ago, when the plant had not lost an additional 400 million koruna due to poor management,” said Valek.

But Pilsen’s Pavel Ratislav doesn’t agree, and believes that a gradual increase in production capacity at the mill will reduce the risk to creditors.

All of Pilsen Steel’s financial activities is under the strict control of the temporary creditors’ committee, which was appointed on court order, and also of the debt managers hired by the KKCG investment group. Owned by Karel Komarek, the company has already invested 100 million koruna (about €3,890,000) in the Pilsen Steel Mill and it is expected that by the end of the year, that investment will grow to 400 million koruna (€9,725,500).

Management at Pilsen Steel and the KKCG Investment Group believe that declaring bankruptcy would bring about massive job losses. Many of the steel mill workers are uniquely qualified and would unlikely be able to find other places to work.

According to a statement from KKCG’s press secretary, Daniel Plovajko, the company believes that this amount of investment will be sufficient to fund the steel mill’s activities till the end of the year. Mr. Plovajko also stressed that the investment group is trying to save as many jobs as possible.

Pilsen Steel’s management is no less optimistic. Commenting on the plant’s reorganization, President Igor Shamis announced that the company’s management and he personally are working quickly to normalize the financial situation and have already achieved some progress. Shamis is also certain that in partnering with the creditors’ committee, the plant will overcome the difficulties and will resume normal operations.

Pilsen Steel’s creditors are the last ones to be interested in the bankruptcy option, fearful of losing influence in a company with recognized potential. In addition to KKCG, the other main creditor playing a major role at the moment is VEB Capital, the investment company of the Russian state-owned Vnesheconombank. VEB has total claims of 3.2 billion koruna (€124.5 million). Czech trade unions believe that the creditors voted for the plant’s reorganization in hopes that the Czech-Russian MIR.1200 consortium will be the winner of the tender for the construction of a nuclear power plant in Temelin and the Pilsen Steel Mill will receive a major contract that will provide them with a stable future.

In 2010, Pilsen Steel’s subsidiary, OMZ Corporation, was sold to the United Group under the leadership of Russian businessman Igor Shamis. Pilsen Steel specializes in the production of rotor shafts for wind farms, crank shafts, propeller shafts, bars, rotors, and cylinders. A large part of the production is being exported to other countries in the European Union, especially to Germany, Italy, and Spain.

Text: Katalina Kochkina