A NEW STRATEGY FOR THE PRIVATIZATION OF CFR MARFĂ10 million Euros - the collateral for participating in the privatization of "CFR Marfă"

EMILIA OLESCU (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section /

10 million Euros - the collateral for participating in the privatization of "CFR Marfă"

The authorities have once again taken the first step towards the process for the sale of National Railroad Freight Company - they have posted on the website of the Ministry of Transports the Strategy for its Privatization, a draft which will be up for debate until the deadline of February 10th, 2013.

However, this is not the first time that the Ministry of Transports publishes a strategy for the privatization of "CFR Marfă". For about ten years, all the governments have announced almost every year, that "CFR Marfă" would be privatized, putting up for debate various strategies for its sale. So far, no call for tenders was held for the sale of the railroad operator, as its privatization was postponed every time, for various reasons.

The latest announcement by which the Ministry of Transports would postpone the sale of the majority stake in "CFR Marfă" was made last year in October, claiming the lack of the approval from the Romanian Supreme Council of Defense (CSAT).

Transports minister Relu Fenechiu recently said that "CFR Marfă" will no longer be privatized, but just a few days later, after talking to the representatives of the IMF, he changed his mind and announced that the sale of the company was actually the "top priority", saying that the state would assign 51% of the company's shares and that in a few years it intends to sell the remaining 49% of the shares, thus "bringing the state a considerable gain".

The main objective of the strategy for the privatization of "CFR Marfă" is "maximizing the price which can be obtained in exchange for the block of shares owned by the state" in the company, the draft posted on the website of the Ministry of Transports said.

This shows that the starting price for the call for bids is set by the Ministry of Transports, based on the appraisal report of "CFR Marfă". The collateral for participating in the call for tenders will be the equivalent in lei of 10 million Euros, representing 17% of the face value of the shares owned by the state. The amount of the fee for participating in the call for tenders will be the equivalent in lei of 20,000 Euros.

Upon the recommendation of the consultants selected for the preparation and the execution of the privatization of the company - the consortium comprising "Deloitte Consultanţă" SRL, "Muşat & Asociaţii Sparl" and "Systra" SA -, the sale process will be achieved through a negotiation based on non-binding preliminary offers, followed by a sealed-envelope call for bids. The only winning criterion will be the bidding price.

According to the Strategy, the potential buyers will have the ability to know in a transparent manner all the terms which will be included in the sale contract before the date of the call for tenders, because the draft of the contract for the sale of the shares will be included in the presentation brief. Also, the Romanian authorities reserve the right to monitor fulfilling of the contractual obligations of the buyer, in the post-privatization period, and this will be announced starting as early as the documentation publication phase. The seller will have the right to ask for the cancellation of the contract for the sale-purchase of the shares only based on the clauses thereof.

In order to speed up the privatization, a potential conversion of the debt into equity may take place even after the signing of the sale-purchase contract

In order to achieve the main goal of the Strategy, the Ministry of Transports is empowered to sell the majority stake in "CFR Marfă", as well as the "block of shares which will be owned by the state following the conversion of its claims towards < CFR Marfă > into stock, to the extent that said conversion will be done, if necessary".

The option to convert the debt of "CFR Marfă" has already been taken under consideration by the company and by the Ministry of Transports: a potential conversion of the debts of "CFR Marfă" to the state budget has been included in the pre-notification procedure taking place with the European Commission, the Strategy states.

He said: "Concerning this aspect, < CFR Marfă > was considering the situation of an arrangement concerning the debts which the company had towards the manager of the public railroad infrastructure, namely the National Railroad Company CFR SA (Compania Naţională de Căi Ferate CFR SA). Thus, considering that CFR SA itself had overdue debts towards various public institutions, the Romanian state, as a shareholder of the two companies, intended to initiate a procedure of assignment and compensation".

The privatization process can take place in parallel with the procedure to notify the European Union about the conversion, as the approval from the EC is necessary prior to the effective implementation of the debt to equity conversion.

It would seem that this has been established in order to speed up the privatization process, as the Strategy emphasizes: "As a phase in the privatization calendar, in order to speed up its schedule as much as possible, in order to meet the requirements of the Ministry of Transports and the deadlines discussed with the International Monetary Fund and the European Commission, the conversion stage can be implemented even in the final stage of the privatization process, and after the signing of the contract for the sale of the shares with the winning bidder, but at any rate, before the completion of the sale contract, and after obtaining the approval of the European Commission in that regard".

If the contract with the winner of the call for tenders isn't signed, the Ministry of Transports will have the right to invite the next best bidder for negotiations

If the Ministry of Transports will fail to sign the agreement with the investor/Group with the winning bid, it will have the right to resume the privatization of "CFR Marfă", by implementing any method for the transfer of the right of ownership stipulated by the legislation in effect, with the adequate adaptation of the Strategy, or, as the case may be, by inviting the investors/groups of investors ranked according to their bids, for negotiations.

According to the Technical Memorandum of Understanding negotiated by the Romanian party with the international financial institutions, there is an intention to "approve the strategy for the privatization of < CFR Marfă > through the sale of a majority stake to a strategic investor in the first half of February 2013, as well as the publication of the privatization announcement by mid-March 2013".

10 million lei - the expenses of the Ministry of Transports with the privatization of "CFR Marfă"

The preparation of the privatization process, in order to comply with the law, will require 10 million lei in expenses in 2013, mostly pertaining to consulting and advertising expenses. The amount needed for those expenses is estimated at 10 million lei. According to the strategy, these will be borne out of the budget of the Ministry of Transports.

The document on the website of the Ministry stipulates that "the privatization of the controlling stake of the biggest freight railroad operator in Romania will have a major macroeconomic impact. (...) The privatization of the company can lead to the improvement of the business environment, by liberalizing freight and increasing competitiveness in the sector. (...) The successful completion of the sale of the majority stake in "CFR Marfă" can have a positive financial impact on the state budget in the next fiscal years.

A restructuring of "CFR Marfă", after the privatization, could lead to layoffs

A possible restructuring of "CFR Marfă", after the privatization, could lead to the layoff of a certain number of employees, according to the Strategy put up for debate, which does not stipulate keeping the number of employees.

According to the document, among other things, the buyer will need to fulfill the environmental duties set for "CFR Marfă", to maintain the main line of business of the company, by ensuring the transportation needs "in times of peace, in situations of crisis and war, for the institutions which have roles in the fields of defense and national security" and to maintain/develop the equipment and machinery of the mobilization capabilities owned by "CFR Marfă" to keep them within normal operating parameters.

The buyer will also be required to honor the agreements and the commitments of the railway operator assumed through the agreements and the treaties signed by Romania with NATO and the Armed Forces of the United States of America, to maintain and develop the ferryboat line as an element for connecting between Europe and Asia, as it was designed as an extension of the Pan-European Corridor no. 4.

The Strategy suggests that the contract for the sale of the shares should include clauses concerning the obligation to comply with the legal provisions pertaining to the increase of the company's share capital with the equivalent value of the plots of land for which certificates of confirmation of the right of ownership will be issued after the date of privatization ("meaning that the shares which will result from such operations will be granted exclusively to the Ministry of Transports").

The members of the Privatization Commission will be paid a maximum gross salary of 3,000 lei

The privatization commission will comprise seven representatives nominated by the Ministry.

The Strategy stipulates that each of the members of the Privatization Commission and of the Secretariat may receive a gross monthly wage which may not exceed 3000 lei, paid by the Ministry of Transports.

The process for the privatization of "CFR Marfă" can be attended by individuals and/or Romanian and/or foreign companies, individually (investors, company and/or individual) or associated for the purpose of participating in consortiums or in other forms of association (Group of investors, individuals and or companies) which meet the pre-screening criteria set through the presentation brief.

Among other things, the participants in the call for tenders must have relevant experience in the railroad freight segment as well as financial resources which would prove their ability to acquire and develop a new business.

The members of a Group of investors may only belong to a single consortium/form of association, and may not submit bids individually and as part of a Group at the same time.

The period for which the members will be associates in a Group will be at least equal to the period needed for the privatization, namely until the date of the transfer of the right of ownership over the shares.

Investors which are in default, bankruptcy or liquidation and are the object of a proceeding to declare them as being in one of the aforementioned situations; the investor or the members of the Group which are under the effect of a final criminal ruling for management fraud, participation in illegal activities of corruption or money laundering, professional abuse, forgery, fraud, embezzlement, offering or accepting bribes or other offenses or crimes stipulated in the criminal law may not participate in the call for tenders.

Investors or any member of the Group of investors (in the name of the Consortium which they are a part of), which intend to obtain information for which publication is allowed for the purpose of investigating "CFR Marfă" and/or wish draw up their own assessment of the company, after having acquired the presentation brief, will have direct access to the information available, based on paying in advance a direct access fee, of 5,000 Euros, to the Ministry of Transports, subject to the signing of a confidentiality agreement valid for a period of two years from the date of its signing by the legal representative of the applicant.

The deadline for the payment of the shares which are the object of the shares will be negotiable, but may not exceed 60 days from the date of coming into effect of the decision of the Government to approve the terms and conditions of the sale contract.

The debts of "CFR Marfă" at the end of 2011 - almost 1.9 billion lei

"Performance of < CFR Marfă > has improved in 2011, compared to 2009 and 2010, but it still stood below that of the previous years", the Privatization Strategy shows, which emphasizes that the turnover fell 3.8% in 2010, but increased 8.9%, in 2011, whereas operating expenses fell 22.8%, in 2010 and 14.4% in 2011, respectively.

The EBITDA margin (earnings before interest, taxes, depreciation and amortization), which was negative in 2009 and 2010, became positive again in 2011.

However, on December 31st, 2011, "CFR Marfă" had total debts of 1.89 billion lei, of which current debts amounted to over 1.5 billion lei. Out of those, 1.3 billion lei represented debts to public entities.

In mid-2012, the debts of "CFR Marfă" to the state budget and the social security budget increased to 755 million lei. The company's equity had a negative value (-472 million lei), at the end of 2011.

The syndicated loan denominated in Euros (the biggest credit facility drawn by "CFR Marfă") adds a significant exposure to currency risk, under the current market conditions.

"CFR Marfă" has a fleet of rolling stock of over 39,000 cars (of which only approximately 23,000 are frequently used) and over 900 locomotives.

Over the last few years, several European companies have expressed their interest in acquiring "CFR Marfă"

Over time, several companies in the sector from several countries have expressed their interest in acquiring the majority stake in "CFR Marfă".

Last year, the Government and the delegation of the IMF have agreed to remove "CFR Marfă" from the list of private management companies and for the company to be privatized in a process which would finish the end of October 2012 and in which the EBRD and the IFC, the investment division of the World Bank, would be involved as well. The changes were agreed upon in the negotiations between the Executive and the delegation of the IMF, held in autumn last year, and included in the letter of intention.

Atanas Bostandjiev, the CEO of VTB Capital, the investment division of the VTB group, the second largest state bank in Russia, said last year that the banking institution was looking to invest "several hundred million Euros" in the Balkan region, in the coming years, including in the privatization of "CFR Marfă".

Atanas Bostandjiev said: "I will be happy if we succeed in investing several hundred million Euros in the coming years in various projects in Bulgaria, Romania, Serbia or Greece, directly as a bank or by supporting our clients. There are good opportunities in energy, transports, telecommunications and agriculture. We will be reviewing the privatizations planned in Bulgaria, Serbia and Romania. We are interested in the privatization of the Romanian railroad freight company".

In 2012, Mihai Macsim, the general manager of the Romanian-Russian Chamber of Industry and Commerce (CCIRR), told us that there are Russian investors interested in the Romanian railroad infrastructure: "The Russians want to buy < CFR Marfă > Romania or at least to rent their cars, since they have a shortage of cars. Before, we used to build cars in Balş and Arad for them".

Investors from Poland and the Czech Republic have also expressed their interest in acquiring "CFR Marfă", Constantin Zaharia, the general manager of the state owned company said last year: "We will do everything in our power to have it happen in the most transparent manner possible. We already have contacts with foreign partners, from Poland and the Czech Republic. We are waiting to be contacted by other carriers and we have signs that there are some domestic transports operators that want to talk to us about this".

The companies which the representatives of MT and of "CFR Marfă" had meetings with are "PKP Cargo" (the railroad freight division of "PKP Group", a conglomerate controlled by the Polish state), and "AWT" - the biggest private railroad transporter in the Czech Republic, which also has operations in Romania -, according to Constantin Zaharia. At the time, he had announced that he has talks scheduled with representatives of "Optifin Invest", from Slovakia, which activate predominantly in the sector of the production of freight train cars, owning several plants in Slovakia, Poland, Serbia and Germany.

About two years ago, some sources were saying that the offensive of OBB (the Austrian Railroad Company) would make the Austrian company a major competitor in the bidding for "CFR Marfă".

In 2008, railroad freight company SNCF, controlled by the French state, claimed that it could be interested in the privatization of "CFR Marfă", like British publication "Financial Times" wrote at the time.

Also in 2008, the representatives of the Romanian Railroad Group (Grupul Feroviar Român - GFR), the largest privately owned railroad operator, which is owned by "Grampet", announced that their company was interested in acquiring "CFR Marfă".

Last year, Gruia Stoica, the businessman who owns Grampet, told us that he was watching the "evolution of the process for the privatization of < CFR Marfă >", but he declined to comment any further on the matter, "until anything official is known about this privatization".

Market sources claim that GFR and the Russian company RZD "would be the only competitors in the race for the privatization of < CFR Marfă >", and they are saying that the railroad operator "isn't exactly attractive to companies from France and Austria, due to the precarious state of its finances".

GFR and "CFR Marfă" have collaborated over time, in a joint-venture, called "Rolling Stock Company", a private company whose line of business is the rental in South-Eastern Europe of the rolling stock which "CFR Marfă" contributed to CFR Marfa.

During the privatization procedure for "Oltchim", as well as after its failure, TV owner Dan Diaconescu said that he was interested in other state owned-companies as well, including "CFR Marfă".

However in 2010, sources from the railroad industry were saying that the interest in "CFR Marfă" had fallen considerably due to its reliance on the coal in the Valea Jiului region: "The European Commission has already asked for the shutdown of the unprofitable coal mines in Germany, Spain and Romania until October 2014, which will affect, among others, the railroad freight company, which is 60% reliant on the Valea Jiului region".

Other sources were claiming that this would also affect the amount which the state would earn from the privatization of "CFR Marfă".

Cotaţii Internaţionale

vezi aici mai multe cotaţii

Bursa Construcţiilor



Curs valutar BNR

02 Dec. 2020
Euro (EUR)Euro4.8721
Dolar SUA (USD)Dolar SUA4.0434
Franc elveţian (CHF)Franc elveţian4.4931
Liră sterlină (GBP)Liră sterlină5.3981
Gram de aur (XAU)Gram de aur237.9394

convertor valutar


mai multe cotaţii valutare

Cramele Cotnari
Cotaţii Emitenţi BVBCotaţii fonduri mutuale
Pagini Aurii
Carte - Golden calf - the meaning of interest rate
Carte - The crisis solution terminus a quo
Cabinet de avocatservicii curatenie