Željezara Nikšić Creditors Fail to Cooperate

Željezara Nikšić is in trouble, but instead of cooperating to find solutions the parties involved are fighting each other – in the courts and in the courts of public opinion.

On one side stands the workers union, which forced Željezara Nikšić A.D. into bankruptcy on 15 April. On the other side stands Ethemba Capital LLP and MN Specialty Steels, the investors who own a majority stake in Željezara Nikšić. MNSS B.V. Amsterdam is a joint venture between the two companies. Ethemba Capital owns 81% of the JV company, while MN Specialty Steels owns the remaining 19%. MN Specialty Steels originally purchased 66.67% of Željezara Nikšić in November 2006 for 5.2M€, with an agreement to invest an additional 118M€ over the next five years.

The unions forced the bankruptcy due to 4M€ in past due wages and benefits. As a result, the Commercial Court took management responsibility away from MNSS. This resulted in the the 1,500 employees of Željezara Nikšić A.D. becoming unemployed and the plant being closed. This was in no ones best interests — it was bad for the workers, the investors, and the nation.

For their side, the investors have taken their case to the European Union in an attempt to pressure the Montenegrin government into intervening in this dispute on their behalf. Daniel Brol, the investment manager at Ethemba Capital, accused the Montenegrin courts of “abuse and mistreatment of foreign investors.” Brol also stated that the “the bankruptcy process in Montenegro is not as clear-cut or equitable as one might have expected.”

Unfortunately, Brol is partially correct. The World Bank’s Doing Business report ranks Montenegro at #28 in Protecting Investors, #135 in Enforcing Contracts, and #47 in Closing a Business. Clearly, we in Montenegro have some work to do in order to achieve world-class status in government-business relationships.

Unfortunately, while the two sides are refusing to work together, the plant remains closed — during a time when global steel prices are exceptionally high and the steel industry is quite profitable. Željezara Nikšić has an estimated book value of 100M€ and total liabilities of approximately 120M€. The investors hope to operate Željezara Nikšić profitably by reducing the number of workers from 1,500 to 700 or fewer. This does not make the union happy, but may look more appealing to the workers as the plant closure drags on.  Unfortunately, Željezara Nikšić lost 32.1M€ last year — even with the benefit of currently high steel prices.

Željezara Nikšic A.D. was a producer of carbon, low alloy and high alloy steel grades using electric arc furnaces, ladle metallurgy, and vacuum degassing.

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