The East Slovakia Iron Works joint stock company, one of the most important and strategic Slovak corporations, is coping with a heavy financial crisis. According to preliminary economic results, its 1998 financial loss was as high as five bil. Slovak crowns. Gariel Eichler, company president, ascribes it to a poor company management, a management failure to have a global metallurgy recession scenario, inadequate marketing policy, inexpedient agreements and exclusive sales and purchasing contracts that to his opinion were misused.

If the past year's income of the VSZ Iron Works is finally confirmed, it will be the first major economic loss after a long succession of annual profits, and probably not a stone will be left standing. This loss has definitely suspended the ongoing process of VSZ Iron Works transformation into a supra-national holding with diversified activities in areas outside the metallurgy production. It was also a reason of a fall of the inexperienced Julius Rezes management. Julius Rezes' father, Alexander Rezes, remains to be one of the most influential men in the Iron works, despite his surprising Board of Supervision chairman resignation.

The new company management, representing mostly interests of foreign investors and those of Dzurinda government, demands the VSZ Iron Works consolidation to be a joint effort of major shareholders, government and employees.

The present VSZ Iron Works management does not see the solution in production decline or massif lay-offs. Several key problems will have to be addressed in view of its future prosperity, as the company is presently struggling with operational capital shortage, low liquidity and debts of as high as 500 mil. USD. Also its capability to repay the 4,5 bil. SKK in liabilities and 8,5 bil. SKK in overdue claims, filter out the non-metallurgy operations, sell the redundant property, and stop the shameless pilferage after the management replacement are among the issues to be dealt with.

In an STF interview Gabriel Eichler said that unless the pilferage is stopped, VSZ Iron Works cannot be saved. The VSZ Iron Works president also stated that the business plan proposal anticipates a moderate year-end profit, yet refused to give more detail. Neither could he comment the funds gain from redundant property sell-off. All that is generally known is the company intention to sell its 130 companies. Two of them, participating in regional daily newspapers - Kosicky vecer and Luc - have already been sold. On the sell- off list is also the Czech Sparta Praha football club, several luxury cars, planes and real estate, including tens of buildings and lots in Bratislava, Kosice and other Slovak towns. Similar fate is expected also for the VSZ Bratislava building on Jege Street, rented to the HZDS.

Yet according to the current Iron Works president the crucial item on the agenda are the negotiations on strategic foreign partner capital entry. Among the most serious candidates are the U.S. Steel corporation and Indian iron works Ispat International.

"We have just started to negotiate with Ispat. U.S. Steel know us better on grounds of a joint venture. They feel a need to supply mainly their car manufacturing clients from a Europe based steel source. Yet both corporations must be informed about the company financial and production structure, and must be provided an assessment of conditions acceptable for them. In addition we have to take into account also the banks, government and all the parties involved. This is why these operations may take several months". says G. Eichler.

The VSZ Iron Works president and Board of Management director admits that the Iron Works can face a bankruptcy, unless they conclude a strategic partnership agreement within the first half of 1999.

"I am aware that we do not necessarily have to succeed. Of course, that might happen, but we do our best to avoid it. A bankruptcy does not mean a production halt and a definite end of opeartions. It means a selection of the best assets to be sold individually, or a buy-out of the whole company, less any complicated past commitments", says Gabriel Eichler. He is convinced that the Slovak bankruptcy proceedings are suffering under a burden of inadequate regulations, not allowing fast and legal bankruptcy settlements, acceptable for shareholders. Another disadvantage is also a limited number of court houses with experience in bankruptcy proceedings, and an absence of standard creditor / court relations in corporate bankruptcy settlements.

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