Electricity producer SE decided to solve crisis through offensive

Instalment payments in this and the coming two years amount to 32 billion Sk (762.8 mn Euro) - that is about 60 percent of the overall credit burden of the electricity producer Slovenske elektrarne (SE). And so the situation from three years ago is repeating itself - a new financial department of the company is expected to lead the company out of the substantial cash-flow crisis caused by credit burden. This difficulties have been caused by decisions taken by state like building of power plant in Mochovce. Minister Nemcsics will not be in the position to complete his ambition to direct the activities of SE, his successor will need time to find his way and so the solution stays in hands of the company management. Where will they look for the necessary recourses? The operation generates virtually no cash-flow increase - reminds General Manager for Economy and Finances, Milos Sujansky. What the manager considers a possible solution is loan restructuring. 'We have to review the whole loan portfolio in order to eliminate the pressure caused by the necessity to repay the debts in 2004 and the beginning of 2005 and that would allow as to survive in a relatively normal state,' unveils the company plans M. Sujansky. That would mean postponing the instalment payments until 2007. Before this strategy was prepared the existing debts had to be analysed. The results of this analysis showed 'an inconsistent debt portfolio with many non-standard elements anchored in relevant contracts'. In the opinion of Director for External Financing this fact makes the loan management and decision making in regards to assets/liabilities structure difficult. 'When you have 35 different loans and every contract is different - communication and monitoring costs much effort,' he adds. According to an Auditors Report for 2002 prepared according to ISA standards even the share of third-party capital is high and inhomogeneous. The previous financial management managed to minimize the deficit. The fact that for SE a state guarantee became unreachable, the legislation did not allow any increase of energy prices and SE were not allowed to claim penalty payments from privatised power distribution companies in the past - that all deprived the SE from funds that could have been used for refinancing. But, according to I. Lovisek, even if we did not take into account the objective factors, we had to admit that the financing of SE was lacking a systemic approach. Financial managers of SE want to create a new approach towards the banks. 'In August and September we want to initiate 30 meetings in order to set up a bank-club,' unveils I. Lovisek. SE plans to ask them to play an active role in the restructuring process. Depending on attitude of the banks SE plans to select a group of five to six foreign and two to three local banks. But the credit conditions will not be dictated by the banks. The Manager for External Financing of SE stresses that the banks will be preparing their offers based on a detailed plan prepared by SE and SE will then select the best offers. I. Lovisek is positive that this will create a competition between the banks in the club. Banks orientated on commercial risk will be preferred as these will not require state guarantees. But during the time SE will need to build the club it will have to solve its this-year's deficit. Even if this may mean more expensive short-time solutions. 'The simpler the loan structure the better,' he adds. But what will motivate the banks participating in the club? 'All attractive transactions like realization of syndicate, swaps and hedging would be done through these banks,' answers I. Lovisek. Previous management did not succeed in securing a financing that would be advantageous for SE in a long-term run. How can the new management be so sure? 'What the banks expect is an open dialogue about the company's internal problems. We are prepared to lead such a dialogue.' 'And what is more, if you have a strategy prepared the banks are willing to listen,' continues I. Lovisek. In his opinion it is well possible to make the banks to change their attitude towards SE: 'A debtor will be replaced by a partner.' But even this management appeals to the state to solve the SE's claims towards the state and other public entities. (Author)