AMSTERDAM (Sept. 4, 2009) — Russian tire maker Amtel Vredestein N.V. is dropping Vredestein from its name, has appointed a single-member board and approved a set of proposals for financial restructuring.
The actions came at an extraordinary meeting of shareholders held earlier this week in Amsterdam. Day to day management is in the hands of its main creditor and shareholder, Alfa Bank.
The company is to be renamed Amtel N.V., following the sale of Vredestein Banden B.V. to India's Apollo Tyres Ltd. earlier this year.
Former Directors Petr Zolotarev and Vadim Pesochinskiy were dismissed, with Alexander Fain, a senior executive with Amtel's main shareholder, ABH Holding (Alfa Bank), replacing Mr. Zolotarev as chief executive. Mr. Fain is now the sole member of the management board.
Creditors to Amtel likely will face a choice of either converting their debts into equity in a new company and then be faced with further cash calls to fund a resurrection, or to suffer from discounted debts and extended payment terms with no long-term guarantee they will get all their money back.
The company´s troubles have been made significantly worse by the global economic downturn. Sales of tires in Russia fell roughly by half in the first half of this year, and this substantially affected the already limited financial viability of Amtel.
Amtel reported a net loss of $35 million in the three months ended March 31 on 47 percent lower sales, due to the economic downturn and production stoppages at its Voronezh and Kirov, Russia, plants. Production at Voronezh is still idled and output from Kirov from Kirov is irregular at best, according to Alfa Bank.
In a presentation to shareholders, Alfa Bank said previous attempts to rescue Amtel have failed, leaving every main associated and affiliate company in bankruptcy proceedings and senior management who want to leave immediately.
Furthermore, working capital and investment capital are severely restricted. That situation is made worse by a sharp decline in demand for tires in Russia, combined with aggressive competition from other tire makers in Russia, such as Sibur-Russian Tyres, according to Alfa Bank's administrator, J.A. Daniels.
Alfa estimates Amtel needs around $30 milion in working capital to get it going once more. Though it has to be noted that over the last 18 months or so, this amount of capital has been injected, yet it was not enough to kickstart the company, which remains almost frozen.
Alfa further estimates that the Voronezh II plant needs $50 million to get it operational. This seems high, in comparison with similar new build projects, given that the factory is built, all machinery except the mixing room is installed and the mixing room equipment has been purchased, and is awaiting installation.