By John Helmer, Moscow
Victor Pinchuk, the owner of Interpipe, the Ukrainian steelmaker which defaulted on its debts on November 1, has called his first-ever public business meeting. The date is December 9, and the meeting will be telephonic. Deutsche Bank, which is acting as trustee for Interpipe’s $200 million Eurobond issue, is promising to answer questions about the company’s financial collapse, and provide a copy of the debt repayment agreement Pinchuk has with his banks.
Those attending the meeting will not be able to read Interpipe’s presentation until the start of the conference call. They will then have just 60 minutes to read, ask their questions, and listen to the answers. According  to Deutsche Bank, the conference call will “last no more than one hour.”
Well, this is not exactly a public business meeting. The participants were given just four working days to apply for accreditation to prove they are noteholders; that is, that they own Interpipe bonds. To participate, the registered bond owners must also reveal who are their beneficial owners, and prove this to the satisfaction of Deutsche Bank.
This unusual disclosure criterion might settle once and for all the market rumour that Pinchuk has used front companies to buy back the majority of the bonds, so that he now commands at least 75% of the bond issue and bondholder votes. Deutsche Bank claims its role is to serve as trustee for the interests of all bondholders without favour. It warns: “The Trustee expresses no opinion as to the action Noteholders should take…The Trustee makes no recommendations and gives no investment advice herein or as to the Notes generally.” It remains to be seen whether Deutsche Bank will reveal to the minority bondholders the results of its check of the beneficial owning majority — or whether any of the minorities will pass scrutiny to participate.
On November 1, Interpipe failed to honour a $106 million repayment due to its international banks. Interpipe’s debts currently exceed $1.3 billion; it has less than $50 million in cash. The banks, which had already negotiated a two-year old debt restructuring agreement in December 2011, include Citi, Barclays, Intesa, ING, and Credit Agricole. For details of Interpipe’s debts, defaults, and bank agreements, read this .
SACE, the Italian export finance agency, confirms that until the November 1 default, Interpipe had been meeting the payment requirements of the earlier debt agreement. SACE says its exposure to Interpipe before the default was €115 million ($156 million). This is down from $193.1 million reported as owing to SACE in Interpipe’s financial report  for December 31, 2012.
Interpipe says  that since last month’s default, the banks and SACE had set up “a managing committee, with whom INTERPIPE will hold a constructive dialogue to reconcile conditions required for the maintenance of the process. The parties will have to agree upon the amendments to the schedule of repayments for the principal pool loans, as well as some other amendments to the loan agreements.”
This does not include the bondholders. Interpipe’s last financial report indicates they are owed $198.7 million. The notes are paying interest of up to 13%, but the maturity date has been put off until 2017. The bond terms say that once there has been a default on Interpipe’s debts to one class of creditor, such as the banks or suppliers to Interpipe’s operating companies, the bondholders have the right to redeem the full face value of the notes. Deutsche Bank confirms there has been “an Event of Default under Clause 10(c)(i) of the Terms and Conditions of the Notes.” A lawyer advising some of the bondholders says a court application for repayment and redemption is being considered in Cyprus, where Pinchuk registered the Interpipe holding after moving it from Luxembourg in February 2002.
According to Deutsche Bank’s letter to the bondholders, a promise by Interpipe to re-list the bonds on the Luxembourg Stock Exchange in October has now been rescheduled for later this month. The bonds had been de-listed in 2011 after the last default and debt negotiations. An exchange regulator in Luxembourg said on November 6 that Interpipe had made no application to re-list the bonds. The regulator added that in order to get permission to re-list, Interpipe “must prepare a new prospectus.”
Deutsche Bank’s letter to the bondholders says the December 9 meeting will be briefed on “the status of the Issuer’s [Interpipe] efforts to re-list the Notes on the Luxembourg Stock Exchange, which, as a result of formal notice previously given by the Trustee for the Issuer to do so, the Issuer is required to complete by 27 December 2013.” Asked this week if the exchange has received a draft prospectus in time to meet Interpipe’s December 27 deadline, the regulator declined to say.
To meet the exchange’s approval, a new prospectus from Interpipe would be required to disclose details of Pinchuk’s financial operations which have so far remained secret.
One of the contentious ones is an agreement reached between Interpipe and Danieli, one of the largest builders of steelmills in the world. Danieli supplied the electric arc furnace (EAF) and production line equipment for Interpipe’s newest mill in Dniepropetrovsk, which was commissioned in October 2012 . The cost of the mill project has been estimated to have been between $600 million and $700 million. After Interpipe failed to pay Danieli €26 million ($35.2 million) in the spring of this year, the two companies negotiated an agreement to postpone and restructure the debt. Danieli has been reported as telling the Italian newspaper Il Sole 24 Quattro it had agreed with Interpipe to restructure the May repayment, starting with a €10m ($13.5 million) instalment in January 2014 and €500,000 ($675,000) instalments over thirty-two following months.
Interpipe executives have claimed, according to an inside source, that this was not a unilateral debt renegotiation; this is prohibited by the creditors signing the debt override agreement of December 2011. Instead, Interpipe says, according to the insider, that it had technical issues with Danieli which were part of the negotiation to offset Danieli’s claim to be paid. “The project was a difficult one for Danieli. It was stop-start”, the source said.
A Danieli executive, Aurelio Mortoni, (right) says “ it is not our duty to prove that we never faced any issue with the performances of the [Interpipe] Plant’s furnace.” Asked whether there had been claims by Interpipe to Danieli regarding the EAF installation contract, Mortoni said: “the furnace is fully operating and had better performances than the due contractual one as all the remaining parts of the Plant.” Asked whether Danieli had notified the banks supervising Interpipe’s debt restructuring that there was an agreement to resolve the €26 million debt, Mortoni declined to say. Asked for details of the EAF installation contract and the financial impact for Danieli, Mortoni replied: “we are not available to divulge to you any further detail about our relationship with our Client.”
Inside Interpipe there has been a reshuffle of positions and names at the top. On the management side, Vladislav Shulga, who was the chief financial officer early in the year as replacement for Alexander Chernyavsky (Oleksandr Cherniavskyi), has now been replaced  by Denis Morozov. Chief executive Olexander Kirichko has been moved to the company board, and replaced by Oleg Rozenberg, who has been the chief operations officer. On the company board, Kirill Rubinsky, who has been running one of Pinchuk’s investment units, East One , has been dropped as chairman, to be replaced by Gennady Gazin. The 10-member board identified in August, when Interpipe released its last financial report, has now been reduced  to just four. Rubinsky appears to have been removed altogether, though a company press release last week claimed  that he “will continue cooperation with the company as a Member of Board of Directors and President of the Company.” Kirichko is reported by the company as explaining that “the new company model separates out strategic and operations administrations ensuring the company is more sustainable to short-term and long-term challenges.”
A company spokesman declined to clarify what has happened to Rubinsky and Kirichko. “The changes, “ the spokesman said, “are aimed at strengthening the role of the Board of Directors as a body representing the interests of shareholders.” When Interpipe first offered its bonds for sale in 2007, the original bond prospectus reported that “all shares of the Issuer are ultimately owned by a number of discretionary trusts established for the benefit of Viktor Pinchuk and his family members.” There were five – one registered in Samoa, two in the British Virgin Islands, and two in Bermuda. The prospectus  acknowledged the risk that “the interests of [the Pinchuk] trusts’ beneficiaries may be different from those of the Noteholders which may cause the Issuer to take actions that are not in the best interests of the Noteholders.”