photo: Liberty Ostrava/The Liberty Crisis Intensifies: Ostrava Smelter Defaults on Loan Repayment, State Insurance Company to Foot the Bill
For some time, there have been murmurs about Liberty's precarious financial standing. The smelter has already shut down its primary battery and has not managed to repay the loan it secured from Greensill Bank during the COVID-19 pandemic. The state insurance company, EGAP, which backed the loan, has been unsuccessful in its attempts to delay the repayment of the 1.5 billion crown loan for the Ostrava smelter.
Last week, funds in euros were transferred to the account of the insolvency administrator in Hamburg, who is overseeing the case of the now-bankrupt Greensill Bank. Liberty had borrowed 1.5 billion from a bank that collapsed during the COVID-19 pandemic. Now, creditors are demanding the same amount from EGAP, which provided the loan guarantee. "This is a well-secured claim. EGAP is currently taking all necessary measures to ensure its repayment in collaboration with all relevant parties," commented Jan Černý, the spokesperson for EGAP. Previously, there were rumors that the state might contest the guarantee, as the loan was reportedly not used for the smelter's operational financing.
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According to media sources, the guarantee against EGAP was called upon in mid-August by the German insolvency administrator after Liberty Ostrava failed to make the principal payment. Moreover, EGAP attempted to negotiate an installment plan or a payment delay with the insolvency administrator, especially since the company was obligated to pay loan interest amounting to 60.8 million euros. However, these discussions bore no fruit.
The steel industry has grappled with a slump over recent months. This is due to a 50% year-on-year drop in steel product prices, diminished demand in construction and engineering sectors, and ongoing battles against inexpensive imports. Consequently, the Ostrava smelter isn't in a position to settle the debt in a single payment from its available funds. "We've reached a basic agreement," stated Liberty's spokesperson, clarifying that the smelter will repay the EGAP loan in consistent installments.
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The downfall of Greensill Bank, a fundamental financier for both Liberty Steel and its parent company, GFG Alliance, poses significant challenges for the smelter owned by Indian businessman Sanjiv Gupta. We have previously reported on the gravity of the situation and highlighted that mass redundancies are currently being staved off solely by collective measures.
EGAP had extended guarantees for similar operational loans to at least a hundred domestic firms during the COVID era. As per Jan Černý, the spokesperson for EGAP, Liberty's failure to repay is only the second instance among the hundred companies that couldn't clear their debt.
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