The debts of listed companies went up by 9 billion lei (EUR2 billion) in three years, with the indebtedness level up from 84% to 101%.
The simplest way to calculate a company’s indebtedness level is by measuring a company’s overall debts against its equity capital. It basically means how many lei a company has to return (the amount of debt) for every leu brought by the shareholders into the company (equity capital is the shareholders’ money).
So, at the end of 2011, for every leu of shareholder money, listed companies had one leu of debt. 65 listed companies were analyzed, not taking into consideration SIFs, banks and Fondul Proprietatea regional investment fund, where balance sheets have particularities specific to the financial sector.
An increase in a company’s indebtedness level usually shows that the company has financed its growth by taking out loans. But in fact the increase in the debt of stock exchange companies was an effect of the economic crisis of 2009-2010.
Very few companies on the stock exchange took out loans for investments in the past three years, while most froze their investments. On the other hand, companies faced a number of difficulties, such as higher deadlines for the repayment of debts from clients and even client insolvencies. This in turn left the companies short on cash, and having to take out loans from banks or to increase debts to their suppliers.
Another factor that significantly contributed to the increase in nominal debts is the depreciation of the leu against the euro and the dollar, which made loans taken out by companies in foreign currency in the years previous to the crisis become more expensive.
The leu/euro exchange rate increased 8.4% (from the end of 2008 until the end of 2011). So EUR1,000 of debt became RON4,000 at the end of 2008, while at the end of 2011 it reached RON4,320.
The leu/dollar exchange rate rose even more, by 17%, with a debt of $1,000 increasing from RON2,834 to RON3,340. So it is no coincidence that the biggest debt increase in nominal terms was recorded by Rompetrol Rafinare (RRC.RO), a company with significant debts in dollars. The overall debt of Rompetrol Rafinare went up by RON3.9 billion in the last three years, to RON6.6 billion. This despite the fact that around EUR516 million of RRC’s debt was “erased” in 2010 by converting the bonds held by the Finance Ministry into shares. But the company has over $1 billion in loans from its majority shareholder, the Rompetrol group, controlled by Kazakh company KazMunaiGaz.
The most indebted companies on the stock exchange at the end of last year were Oltchim (OLT.RO), Rompetrol Rafinare, Mechel Targoviste (COS.RO), MJ Maillis (MJM.RO) and UCM Resita (UCM.RO). These companies had negative equity capital at the end of last year. This means that, in theory, if the assets of these companies were sold at their book value, it would not cover the debts and the shareholders would have to come up with additional money.
The reasons for these situations differ from company to company.
For instance, in the case of Oltchim (OLT.RO), its biggest debts are to the state (the state’s privatization watchdog AVAS), and the debts became larger in the past few years because of interest rates and penalties. Oltchim’s financial situation also deteriorated because of the lower production and turnover, with the company posting operating losses which it had to cover through loans.
The debt of steel maker Mechel Targoviste, part of Russian group Mechel, went up, as in the case of Rompetrol Rafinare, because loans in foreign currency taken out from the majority shareholder became more expensive.
In the case of these companies, major loans taken out from the group can be an indirect way of transferring profit.
But the most bizarre case is that of UCM Resita, where nominal debt abruptly leapt in 2010 by RON1.35 billion. It is not clear what this debt represents. In the balance sheet, the RON1.3 billion corresponds to suppliers. The company also has debts to recoup worth RON1.34 billion. This figure could correspond to the 2010 transaction in which UCM Resita sold four engines for EUR250 million to a company controlled by Lebanese businessman Said Baaklini. Based on this bill, Baaklini asked for EUR60 million in VAT to be returned to the company saying the engines were going to be exported. Baaklini was arrested in November 2010 as was Adrian Chebutiu, chairman of the Board of Directors of UCM Resita, but no new information has emerged about this case in the last year. In 2011 UCM Resita went insolvent.
In fact, the significant increase of debts and of the indebtedness level are a warning signal for investors, and in some cases it can lead to insolvency, if the company’s activity doesn’t generate sufficient cash flow to allow the payment of debts. It is the case of Concefa Sibiu (COFI.RO), which has recently gone insolvent with an over 200% indebtedness level.
The least indebted companies on the stock exchange are hotel company Casa de Bucovina Club de Munte (BCM), with an indebtedness level of just 1.3% and the Bucharest Stock Exchange (BVB.RO), with 2.4%. (EUR1=RON4.378)
(English version by Daniela Stoican)