VZMD

Attitude of the Republic of Slovenia against small shareholders in the Slovenian Steel Industry, Inc. (SIJ - Slovenska industrija jekla, d.d.)

Brief history of problem development

Towards the end of 1980's, Yugoslavia was facing a quick downfall. Along with that process, a relatively closed marketplace in our joint state at that point of time disintegrated as well. A four-year long war completely broke up previous business connections between new small states.

Highly specialized Slovenian steel industry found itself over night on a domestic market which was ten times smaller than before, investing immense efforts to break through to new foreign markets in the area of the European Union and USA. Namely, all traditional markets in the countries of Eastern Europe were lost where similar disintegration processes were running as in Yugoslavia though.

A large number of workers (18,000) and several centuries of steelmaking experience in Slovenia helped the newly developed state to adopt the important decision that that industrial branch had to be preserved.

Since other economy branches were suffering similar problems as well, some have completely vanished by now, the Slovenian government did not have enough financial means to carry out a very demanding rehabilitation along with a simultaneous restructuring of domestic steel industry. As a result, complete property which was not necessary for business operations (recreation and sports facilities) was sold, followed by a gradual sale of metal-working enterprises.

A large share of funds was raised, collected by workers in steelworks themselves who gave up a part of their salaries to be paid back to them later on. They invested that part of their salaries into a rehabilitation of the Slovenian Steel Industry, Inc., (SIJ - Slovenska industrija jekla, d.d.) in the years 1991, 1992, 1993, 1994 and 1995. Of course, the number of employees has been going down all the time.

The workers and those unemployed put pressure upon the government of the Republic of Slovenia to get back their money they invested into company's rehabilitation. At least 15,000 legal suits threatened to be brought in against the government which would be then forced to pay the amounts in cash along with legal default interest.

The government of the Republic of Slovenia understood that payment of such a large value would destroy the whole holding company. Therefore it started, with the help of trade unions, to convince employees that they would receive a just repayment for their invested money; for that purpose, they promised to adopt a special fundamental legal Act.

That legal Act was passed in 1998 and it allowed the workers to change, convert a part of their invested money into shares of Slovenska industrija jekla, d.d. Accordingly, for 417 EUR underpayment of their salaries they received a share in the nominal value of 417 EUR per share. Here, only their investment in the years 1991 and 1992 was considered, without any later upward revaluation in net value. Therefore, workers today have smaller pensions from that title!

According to the above legal Act, the value of such shares - when exchanged for 20% ownership shares in subsidiaries - should be much higher after finished rehabilitation of steelworks; a sold ownership share should increase the share value to much more than 417 EUR per share.

The main aim of that legal Act was also to improve business performance since workers as shareholders would feel a much higher commitment and loyalty to the system, which as the matter of fact happened indeed. To protect small shareholders against speculators in the grey market, special joint-stock companies - a company holding power of attorney had to be established.

In the frame of holding, three companies holding power of attorney were founded, one on each location where steelworks were operating. Workers had to invest such shares as a non-cash contribution into the share capital of these three joint-stock companies. These formed a capital structure and the management ratio in the company on a free basis.

In December 2001, the parliament adopted a new legal Act to fulfill obligations which were accepted and taken over by the Slovenian government from the European Union, namely that it would not increase the competitive position of domestic steelworks by subsidies paid out from the national budget.

That legal Act also defined the conversion rate in obtaining business shares in subsidiaries. According to that legal Act, the companies holding power of attorney gave shares in the nominal value of 417 EUR per share for a 417 EUR share capital of a subsidiary. The shares of SIJ - Slovenska industrija jekla, d.d., have never been listed on stock exchange and therefore they served to the companies holding power of attorney only as an instrument of conversion.

The conversion was running very slowly. From the year 2003, when the sale of two steelworks (Jesenice and Ravne) and one metal-working company in Ravne (the Štore steelworks had been sold already before that) was cancelled, these three companies have made large profits.

Although companies holding power of attorney demanded 20 % shares in these companies, the remaining shares have never been converted.

All of a sudden, the government made the offer to purchase back the shares for 190.7 EUR - which means only 46 % of the value from the time ten years ago. The current government changed the pattern of privatisation. It started selling the majority package of shares, 55.35 % of the holding of Slovenian Steel Industry, Inc., (SIJ - Slovenska industrija jekla, d.d.) and no longer of subsidiaries. In this way, it sold the whole entity and preserved the holding company in Ljubljana. Negotiators sold the company to the Russian buyer for 190.7 EUR per share; the same value had been offered to the companies holding power of attorney already two years ago!?

The assessment ordered by one of these companies holding power of attorney shows, however, that the price should be at least 546.9 EUR per share. In this way, they want to eliminate small shareholders and to curtail them of several millions EUR they are entitled to.

Although steelmaking companies were making profits, small shareholders did not get their share in profits distribution. All the way since 1998, they did not have their representative in the organs of management and supervision as they could only act as ''teasers''.

The Russian buyer received a bank credit from the Consortium of Slovenian Banks to pay the purchase price, however, he pledged the shares he will buy!?

Small shareholders of the Slovenian Steel Industry, Inc., (SIJ - Slovenska industrija jekla, d.d.) wish and ask the Euroshareholders Association for help in our fight for equal rights.