After Putin, Amur Steelmaker Mulls Layoffs
Amurmetal, the only steelmaker in Russia's Far East, is all in all laying off up to 1,600 people, or 25 percent of its staff, until September, Amurmetal Group chief executive Sergei Khokhlov said Wednesday.
The drastic measures are under review, even though Prime Minister Vladimir Putin promised millions of dollars in state guarantees during a visit to the plant earlier this week, and are a sign of the foolhardiness faced by some heavily indebted companies amid the crisis.
creation capacity at the Amurmetal plant has fallen to 25 percent this month, down from 60 percent in the first quarter, because of severe shortages in working capital and the need to service its large debt, Khokhlov said.
"We have no problem with demand," a visibly exhausted Khokhlov told a small group of journalists in his office in the Far East city of Komsomolsk-on-Amur. "But we severely need to replenish working capital because we have a huge debt to serve and don't even have money to buy raw materials."
In an attempt to optimize manufacture, Amurmetal might lay off up to 1,600 people until September, Khokhlov said.
"We also are advising them to go on unpaid vacations so that we can quickly get them back on the job when we are able to work normally again," he said.
Putin promised 3.3 billion rubles ($103 million) in state guarantees when he visited the plant on Monday. Khokhlov said, however, that much more money is needed to keep the plant afloat.
Amurmetal's debt stands at 16.4 billion rubles after it took out loans to upgrade the plant over the past two years. Eleven billion rubles of the debt comes due this year.
"We are holding negotiations with Gazprombank, Commerzbank and Erste Bank on getting new loans," Khokhlov said.
With the state guarantees, Sberbank has promised to extend a 3.3 billion ruble loan to Amurmetal, Khokhlov said.
Of the loan, 1.5 billion rubles will be spent replenishing working capital, while the other 1.8 billion rubles will go toward finishing the modernization of the plant. Amurmetal expects to receive the first 1 billion ruble tranche of the loan before the end of the month.
Amurmetal failed to make a profit in the fourth quarter of 2008 and the first quarter of 2009 because it had to pay huge debt-servicing costs as steel prices and demand for the metal plummeted. Khokhlov said Amurmetal worked at 60 percent capacity in the first quarter but reduced capacity to 25 percent this month because it was in dire need of the scrap metal that it uses to make steel. However, as Amurmetal gets money from Sberbank, the plant plans to raise origination capacity to 90 percent by September. "We have guaranteed demand from traders First Alpina and Stemcor," Khokhlov said.
At full capacity, Amurmetal can produce 2.1 million tons of steel per year. Amurmetal currently exports 80 percent of what it produces, mainly to South Korea, Vietnam and Indonesia.Facing low demand at home, many Russian steelmakers have directed a major part of their production to Southeast Asia this year.
Prices for scrap metal had been going down recently to reach $137 a ton in May, according to UralSib.
Putin has traveled across the country since the crisis struck last fall, meeting with plant directors and workers to offer stimulation and state guarantees.
President Dmitry Medvedev, however, acknowledged Wednesday that one superintendence plan to help companies by providing 300 billion rubles in state guarantees had failed. He told a command meeting that not a single ruble set aside for state guarantees in the form of lesser liability had been given out by banks.
"I do not want to blame anyone in individual," he said. "Most likely the banks themselves should have signaled that such a mechanism would not be convincing for them."
Medvedev called for a plan to be put together that would offer guarantees with joint liability. Finance Minister Alexei Kudrin said the necessary legislation would be drafted by the end of the week.
Joint liability strengthens the guarantee because it makes the guarantor of a loan the debtor as well.
Khokhlov said he appreciated Putin's visit and the government's help but added that there was a lot of work that the plant had to do by itself.
"I told Putin about our situation prospects," Khokhlov said. "But what can you actually discuss in 20 minutes?"
Khokhlov looked exhausted, speaking slowly and with an effort. "I have nothing left to be afraid of, I have feared enough already," he said.
Outside Khokhlov's office, three doctors waited to see him after he met with the reporters. "It's all about the director's stress," Khokhlov's secretary explained.
The drastic measures are under review, even though Prime Minister Vladimir Putin promised millions of dollars in state guarantees during a visit to the plant earlier this week, and are a sign of the foolhardiness faced by some heavily indebted companies amid the crisis.
creation capacity at the Amurmetal plant has fallen to 25 percent this month, down from 60 percent in the first quarter, because of severe shortages in working capital and the need to service its large debt, Khokhlov said.
"We have no problem with demand," a visibly exhausted Khokhlov told a small group of journalists in his office in the Far East city of Komsomolsk-on-Amur. "But we severely need to replenish working capital because we have a huge debt to serve and don't even have money to buy raw materials."
In an attempt to optimize manufacture, Amurmetal might lay off up to 1,600 people until September, Khokhlov said.
"We also are advising them to go on unpaid vacations so that we can quickly get them back on the job when we are able to work normally again," he said.
Putin promised 3.3 billion rubles ($103 million) in state guarantees when he visited the plant on Monday. Khokhlov said, however, that much more money is needed to keep the plant afloat.
Amurmetal's debt stands at 16.4 billion rubles after it took out loans to upgrade the plant over the past two years. Eleven billion rubles of the debt comes due this year.
"We are holding negotiations with Gazprombank, Commerzbank and Erste Bank on getting new loans," Khokhlov said.
With the state guarantees, Sberbank has promised to extend a 3.3 billion ruble loan to Amurmetal, Khokhlov said.
Of the loan, 1.5 billion rubles will be spent replenishing working capital, while the other 1.8 billion rubles will go toward finishing the modernization of the plant. Amurmetal expects to receive the first 1 billion ruble tranche of the loan before the end of the month.
Amurmetal failed to make a profit in the fourth quarter of 2008 and the first quarter of 2009 because it had to pay huge debt-servicing costs as steel prices and demand for the metal plummeted. Khokhlov said Amurmetal worked at 60 percent capacity in the first quarter but reduced capacity to 25 percent this month because it was in dire need of the scrap metal that it uses to make steel. However, as Amurmetal gets money from Sberbank, the plant plans to raise origination capacity to 90 percent by September. "We have guaranteed demand from traders First Alpina and Stemcor," Khokhlov said.
At full capacity, Amurmetal can produce 2.1 million tons of steel per year. Amurmetal currently exports 80 percent of what it produces, mainly to South Korea, Vietnam and Indonesia.Facing low demand at home, many Russian steelmakers have directed a major part of their production to Southeast Asia this year.
Prices for scrap metal had been going down recently to reach $137 a ton in May, according to UralSib.
Putin has traveled across the country since the crisis struck last fall, meeting with plant directors and workers to offer stimulation and state guarantees.
President Dmitry Medvedev, however, acknowledged Wednesday that one superintendence plan to help companies by providing 300 billion rubles in state guarantees had failed. He told a command meeting that not a single ruble set aside for state guarantees in the form of lesser liability had been given out by banks.
"I do not want to blame anyone in individual," he said. "Most likely the banks themselves should have signaled that such a mechanism would not be convincing for them."
Medvedev called for a plan to be put together that would offer guarantees with joint liability. Finance Minister Alexei Kudrin said the necessary legislation would be drafted by the end of the week.
Joint liability strengthens the guarantee because it makes the guarantor of a loan the debtor as well.
Khokhlov said he appreciated Putin's visit and the government's help but added that there was a lot of work that the plant had to do by itself.
"I told Putin about our situation prospects," Khokhlov said. "But what can you actually discuss in 20 minutes?"
Khokhlov looked exhausted, speaking slowly and with an effort. "I have nothing left to be afraid of, I have feared enough already," he said.
Outside Khokhlov's office, three doctors waited to see him after he met with the reporters. "It's all about the director's stress," Khokhlov's secretary explained.
