Suspicion over bid to rescue steel-maker

Date: 04/07/1996

EUROPEAN Commission clearance of a

38-million-ecu bail-out of loss-making Belgian steel-maker Forges de Clabecq appears doomed to fail.

“No private investor - Belgian or foreign - would consider injecting funds into Clabecq,” says Alain Lesage, chief economist at the Union Wallonne des Enterprises.

This is the key question facing Competition Commissioner Karel Van Miert as he considers whether the rescue plan notified to him last week by the Walloon regional government constitutes an illegal state aid.

Although he is Belgian and the case will be a political hot potato in his home country, Van Miert has pledged to examine it “like all the other ones - transparently and rigorously”.

This means, he said, judging “whether a private investor, acting in the long term, would have done the same”.

At first glance, his suspicions have been aroused. “If the private sector leaves and the public authority is almost forced to take over the whole thing, then there is a presumption of state aid,” he said.

Under the Clabecq rescue plan, the Walloon region is acquiring a 21&percent; stake held by the Dessy family - which has controlled the company since the Second World War - for a symbolic one Belgian franc (0.025 ecu). As a result, the regional government will become a 65&percent; shareholder.

“These conditions were imposed on us by the Walloon government,” complains former Clabecq chairman Pierre Dessy.

The symbolic price paid is not surprising, according to Alain Lesage: “Clabecq's own equity is now negative. From an accounting point of view, Clabecq shares are worthless.”

Dessy refused to say whether he would have been willing to recapitalise Clabecq had the authorities asked him to participate.

“I am now looking at all of this from the outside,” he says.

“The Dessys no longer have the kind of money that is required to invest in the steel sector,” asserts a Walloon industrialist. Moreover, the family itself is widely blamed for Clabecq's downfall since it proved unable to provide the company with a long-term vision and incapable of resisting trade union influence.

Major investments have been made, but Clabecq still offers the same mix of low-yield, unsophisticated products as it did 20 years ago - predominantly thick sheet metal for shipbuilding and off-shore platforms - and has failed to switch to more cost-efficient electrical furnaces.

Last November, during a general shareholder's meeting, Dessy said: “We don't want to drown, but I can't master the storm.”

Clabecq is effectively drowning. The company's net debts currently exceed 50 million ecu and it is losing close to 4 million ecu every month despite sales revenues of 23 million ecu.

Jean Gandois, chairman of steel-maker Cockerill Sambre, was commissioned by the Walloon Region to audit Clabecq's accounts and calculated that the company suffered a monthly cash drain of about 2.5 million ecu - excluding basic spending on equipment maintenance and debt servicing.

He also found that the company was unable to compete on international markets: the cost price of its semi-finished products is 25&percent; higher than that of its European competitors and up to 50&percent; more expensive than the market leaders.

Gandois concluded that the firm needed a capital injection of 115 million ecu, but that anyone who did this would be “both a speculator and a philanthropist”.

The Walloon government is now attempting to convince Van Miert that its own plan - which includes reducing capacity by 30&percent; and cutting 700 jobs from a total of 2,100 - is in line with private investor behaviour.

“For us, in absolute terms, there is no state aid,” says one member of the cabinet of Walloon Minister President Robert Collignon. “This is a recapitalisation on the basis of an industrial plan aiming at balancing the accounts within two years.”

In the meantime, however, Clabecq is just managing to pay its monthly bills thanks to short-term loans from the Walloon region. Ironically, putting Clabecq on a cash drip is legal, provided the company pays the right interest rate: the Commission cleared a

13-million-ecu loan to Clabecq in 1993 in similar circumstances.

However, winning overall approval for the plan will not be so easy.