State cancels debts and takes over shares

The debt-for-share swap benefiting certain companies, either state or privately held, resurfaces. The Government is planning to regulate this process for the companies that benefited from foreign loans pledged by the state, which they did not pay, according to an ordinance draft drawn up by the Public Finance Ministry and the Privatisation Authority. The Finance Ministry paid about $500 million in mid last year.

One of the first steps taken by Nastase Cabinet was abrogating Emergency Ordinance 205/2000 issued by Isarescu Cabinet, which allowed turning certain companies’ debts to the state into shares.

The normative act, passed in November, was suspended shortly thereafter by Isarescu Cabinet itself, due to the disputes it had stirred.

The Ordinance practically made no difference between state-run and privately held companies, stipulating they would all get their debt-related delay charges and penalties erased.

Under the current draft, the state’s receivables derived from the amounts the Finance Ministry paid as pledger, as well as credit-related interests, delay charges and penalties may be extinguished by conversion into shares issued by the debtor companies. The conversion will be done at the face value of the shares.

The draft further stipulates that slating off the debts from the Finance Ministry and the companies’ records will be done when the Ministry comes into possession of the shares, which it will later transfer to the Privatisation Authority. As soon as the normative act is passed, the two ministries involved will work out the enforcement methodological norms.

The decision to have the debts converted into shares must be endorsed by the General Shareholders Assembly of each company involved. In case they vote against, the explanatory note specifies that the settlement of debts will be made either by payment or by enforcement of the banking collateral.

The enforcement of the ordinance will entail creating new institutions, yet the explanatory note says it will not lead to them overlapping with other institutions, while expenditures will be extremely low as compared to the amounts the state stands to recover.