Friday, August 3, 2012

Rail Freight Assets Might Swap for Debt if Loans by State Cargo Carrier Remain Unpaid

BDZ Suffering Under Weight of Credit Agreements
Shipping News Feature

BULGARIA - The parlous state of Bulgaria’s state railway system was illustrated yesterday with comments made by Bulgarian Prime Minister Boyko Borisov following his meeting with Hans Heinrich Driftmann, Chairperson of the Association of German Chambers of Industry and Commerce, currently in the country following a Presidential invitation. The freight arm of BDZ is its only profitable subsidiary having as it does around three quarters of the country’s rail cargo market.

BDZ have been threatened in the past by German banking group KfW when they failed to repay loans outstanding from 2003 for equipment purchased with €24 million of borrowed money. Now, following their latest acquisitions, BDZ is in debt to Siemens/KfW to the tune of €150 million, having borrowed around €190 million in 2005, with it seems, little possibility of redeeming the full amount of the loan in the foreseeable future.

The Prime Minister was blunt in his appraisal of the situation describing the debt as ‘a millstone’ and going on to say it was damaging the country’s relationship with Germany. Mr Borisov fears the bankers underwriting the loans will approach the German Economic Ministry causing serious damage to both Bulgaria’s credibility within the international community, the country, together with Romania, is the last full member of the EU having joined only in 2007, and its creditworthiness to private investors.

Mr Borisov brought up the idea which has been whispered about previously, that Siemens, who supplied the actual trains involved, might wish to take control of the BDZ rail freight business, effectively handing it over lock, stock and barrel to the engineering and electronics giant. Last year the freight arm of BDZ was valued by the government at around €150 million, coincidentally precisely the amount outstanding in loans. When the government offered the freight arm for sale apparently only one bidder could be found presumably offering less than the state could afford, or wanted to, accept.

With a history of failing to meet its financial obligations, state subsidies of around €6 million a month were apparently withdrawn when previous debts went un-serviced and are still being withheld. BDZ and the government need to take remedial action quickly to maintain any credibility and it is looking that for both Siemens/KfW and BDZ some form of compromise needs to be reached quickly. If anything substantial fails to materialise we may see the Bulgarian state railway deteriorate still further and permanent damage to the country’s economy occurring.