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Central Bank to Help Restructure Indebted Companies

Ljubljana, 12 March (STA) - Slovenia's central bank, Bank Association and the Chamber of Commerce and Industry have been drawing up a scheme aimed at kick-starting growth at some of the over-indebted but promising companies. Banka Slovenije has conducted talks with 30 companies and creditor banks and will shortly notify the government of the results.

The central bank has been working with the Bank Association (ZBS) and with the support of the Chamber of Commerce and Industry (GZS) since mid-2012 on activities to improve conditions for business operations in the country.

Talks have been held for months with the managements and owners of companies on the terms of operational, financial or ownership restructuring that would gradually improve their financial state, increase their capacity to repay loans and in this way improve their credit rating.

Based on a study of 257 companies, talks have so far been conducted with 30 companies. "We made binding agreements with banks if they assessed prospects of the company involved positively," the daily Delo cites head of the project, Deputy Governor Janez Fabijan.

The list of companies is not available officially, according to the business daily Finance and Delo, but the latter quotes unofficial information that the list includes retailer Mercator, beverage company Pivovarna Laško, car parts manufacturer Cimos and hardware retailer Merkur.

Fabijan is optimistic about the project, according to his comments in the latest edition of the banking journal Bančni vestnik, which is published by the ZBS: "The spirit in the project is more powerful than the disease, so we are optimistic and bankers and companies have demonstrated exceptional resolve."

"The diagnosis suggests the prescription of right medicines: financial, operational and ownership restructuring or their combination as appropriate to each case," Fabijan stated, adding that the deal also involves deadlines for measures on the line between the central bank and the creditor banks.

The financial institutions entered the project because the improvement of companies' cash flows and their restructuring would in turn improve the state of the banking system and create the conditions for reviving economic activity in the country, which slipped into a double-dipped recession last year.

The central bank has also wrapped up meetings with another group of companies. These come from various industries but all generate positive cash flows through their operations, but are heavily indebted and face high financing costs, according to Delo.

The daily writes that commercial banks would like the state to play a more active role, having an important or majority interest in some of the companies. They would like the state to contribute aid, mainly in the form of guarantees. But the state has not responded so far.

According to Fabijan, the review of companies has so far shown difficulties in management due to irresponsible ownership, poor investment planning, lack of expertise, excessive involvement in non-core business and formation of holdings and high operating costs due to the uncompetitive environment.

Among other issues he quoted low liquidity and poor management of cash flows, lack of strategy of the country's development, while he pointed to the relatively high external demand in contrast to general macroeconomic projections as an asset.

Banka Slovenije and the ZBS have often warned that restructuring of the economy would require changes in insolvency legislation so as to give creditors more influence over the restructuring of the companies whose owners are incapable of rescuing them themselves.

The central bank, ZBS and GZS have also been calling for changes that would allow a faster and more effective settlement between debtors and creditors outside insolvency proceedings.

According to the business daily Finance, the central bank is to propose to the government reintroducing the loan guarantee scheme under which the state would guarantee for new loans to promising companies that are now deadlocked because of high debts.

But the daily warns that the rules should be sensible and clearer than in the scheme introduced by the Borut Pahor government where loose terms enabled C-rated companies such as the now bankrupt builders SCT and Vegrad to get loans.

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