Transcript Investment fund

Distressed Assets & Project
Finance: Poland
25 June 2010
Christopher Garner
Counsel
CIS Local Counsel Forum 2010
Eсonomic Overview
THE GOOD
 GDP grew by 3.0% yoy in the 1Q10, compared with 3.3% in the 4Q09 and 1.8% in
2009
 Polish banking sector weathered the global financial storm:
 2009 recapitalization increased CAR to 14.1% by 1Q10 (from 11.1% in1Q09)
THE BAD
 Economy slowed 1Q10
 Significant drop in fixed business investment : minus 12.4% yoy
 1Q10 Credit to households rose at a decreasing yoy rate: 5.8% yoy versus 12.1%
in the 4Q09
 Businesses decrease credit appetite  Debt reduction strategies (except
construction and public sectors)
AND … THE UGLY
 Ratio of NPLs (to non-financial sector) increased to 7.9% in 1Q2010 from 4.5% in
1Q08
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Distressed Assets / Restructuring (1)
The Landscape:
 Few transactions seen on Polish market
 Polish banks prefer to restructure existing portfolios: extend repayment terms,
adjust /reset financial covenants
 Bankruptcy proceedings can be lengthy and expensive
 Big news-makers are fighting insolvency battles elsewhere in Europe („Centre of
Main Interest” battles  e.g., Orco)
The Legal Framework:
 Financial Restructuring of Enterprises and Banks Act 1993
 Commercial Companies Code
 Banking Law Act
 Investment Funds Act
 Law on Bankruptcy and Reorganisation (amended 2009)
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Distressed Assets / Restructuring (2)
Two types of transactions are being seen on the Polish market:
1. Bankruptcy and Restructuring
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Sale of assets/going concern (e.g., Drumet transaction)
Restructring of debt (e.g., Duda transaction)
2. Financial Institutions selling non-performing loan portfolios (NPLs)
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Sale by public tender
Investment Fund
SPV
Distressed Assets / Restructuring (3)
DRUMET
 Producer of steel wires, ropes and staple bands, and employs 850 people
 Suspends production activities in February 2009: unable to meet liabilities to
suppliers (technical insolvency)
 January 2009, files bankruptcy application and Receiver appointed
 Quick process (banks on board): approx. 5 months including public tender
 Sale of Company as a going concern
 Numerous bidders, including PE and Strategics
 Penta Investments purchases for PLN 120 million
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Distressed Assets / Restructuring (4)
PKM DUDA
The Facts:
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Poland’s largest stock exchange listed meat processing company
Unable to meet obligations to creditors  Main problem = currency swaps
March 2009 filed for bankruptcy and voluntary reorganisation
Court gave the company a maximum of 4 months to come to an arrangement with its
creditors (7 major Polish banks (approx Euro 72m debt))
Mechanism:
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Moratorium of 4 months
Debt-for-equity swap
Call option
Buy-back option
Consolidated facility agreement (plus new security granted)
Other measures  shareholder guarantees, bank power of attorney
Results:
 No bank write-offs
 Duda continues operations
 Share capital increase and planned release of Eur 25m on Warsaw Stock Exchange
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NPL SALES: Polish Practice
What are the choices?
 Sale of corporate debt
 Public announcement
 Only corporate debts
 Notifying the debtor 14 days prior to public announcement
 SPV or Investment fund
 Current standard in Polish market
 Losses on NPLs posted to operating costs and tax deductable
 Bank PKO BP sold PLN 3.5bn in 2008/9
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SPV or Investment Fund
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SPV
Advantages:
 small share capital (EUR
1,250 or EUR 25,000)
 Not regulated
 No debtor consent
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Issues bonds
May be traded on Catalyst
Only true sale
Disadvantages:
 no tax advantages
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Investment fund
Investment fund can be created only by an
investment fund management company (IFMC)
Disadvantages:
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IFMC initial share capital of at least EUR 125,000
regulated
IFMC creates securitisation fund
contract with Bank Depository
consent of FSA for securitisation fund creation
Time consumming
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Issues certificates
May be traded on Warsaw Stock Exchange
True sale and sub-participation
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Advantages:
 Tax advantages (no CTT, VAT exempt)
 No debtor consent after 2009
Project Finance / PPP
General situation:
 Required infrastructure upgrade: especially roads and rail
 Euro 2012 incentive and target date: Falling behind
 Renewable energy targets: largely wind farms, however this has stalled as
grid capacity is saturated, financing is tighter
 Traditional energy sector: problem of short-term decision-making
Financing projects:
 Financing constraints since 2008
 EBRD/EIB back on the scene
 Private Equity support?
New PPP and Concession Act:
 Workable ?  transparency, tax incentives, lower initial entry costs
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Project Finance / PPP (2)
The Future:
 Liquidity back to the market
 LNG terminal (political motivation)
 Nuclear commitment (political backing from all parties)
 Waste-to-energy and other renewables (EU targets)
 PPP law  Jury is still out ...
(stadiums and sports centres, hospitals, transport, bus shelters)
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Distressed Assets & Project Finance: Poland
Thank you for your attention
Christopher Garner
Aleje Ujazdowskie 10, 00-478 Warsaw, Poland
tel. + 48 22 437 82 00, + 48 22 537 82 00,
fax + 48 22 437 82 01, + 48 22 537 82 01
e-mail: [email protected]