Rulmentul Brasov Privatization Offer Rejected

AVAS, the Romanian Authority for State Assets Recovery -- announced it has now rejected the last remaining offer for Rulmentul Brasov, the troubled state-owned bearing manufacturer producing RBR and URB branded bearings. This final offer was the second from a consortium formed by SC Industrial Group SRL Bucharest and SC Uzuc SA Ploiesti. It was rejected, "due to the unsatisfactory price and way of request." Over the two years Rulmentul Brasov has ostensibly been on the market for privatization, the few offers received have been quickly rebuffed by AVAS for various, often unclear, reasons. For example, after extending the bidding deadline many times, in November 2005 AVAS accepted proposals from the Industrial Group - Uzuc partnership and another from Rulmenti Barlad. Both were almost immediately rejected, one because it allegedly, "did not comply with the criteria," and the other because the price was not high enough. Now AVAS has rejected a second, more refined bid from the Industrial Group - Uzuc consortium. Rulmenti Barlad dropped out of the bidding. Several observers have told that they believe AVAS is merely going through the motions, with no intention of ever selling off Rulmentul Brasov or appearing to bow to IMF pressure. Rulmentul Brasov's privatization is being forced under a package of International Monetary Fund reforms. Early in 2005, the IMF reached agreement with Romania for a package of very strict governmental and fiscal reforms. The IMF forced the situation because Romania had ignored or been unable to meet so many IMF covenants, and that its economy was collapsing. The IMF said "visible steps" must be taken to address widespread mismanagement and corruption in the government, and its state-run programs and businesses. The largest part of Romania's interest in meeting IMF rules is to keep in sight its ultimate goal of joining the European Union. While Romania has many supporters in its efforts, there are even more EU members who believe Romania's possible entry is still many years away. Among the IMF reforms was an agreement that AVAS would privatize or shut down its three most egregiously ill-managed and money-losing companies by the end of 2005 -- electrical equipment maker Electroputere Craiova, tractor plant Tractorul Brasov, and bearing manufacturer S.C. Rulmentul SA Brasov. In fact, Rulmentul Brasov had been on the IMF's must-divest list since 2004, but no bidders surfaced. Some believe this was due to overly-restrictive covenants, AVAS disinterest, and a general unwillingness to expose the extent of the company's corruption and mismanagement. AVAS also owns 50.8% of Rulmentul Brasov's shares. In 2004, Ortadogu Rulman Sanayi (ORS, Turkey), showed interest in Rulmentul Brasov, but ORS walked away from its USD $3.9 million bid after reportedly discovering the company holds a largely worthless bearing inventory, an impossibly large workforce guaranteed jobs, and finding it would be forced to pay off massive debts, unpaid bills and unpaid wages. Adding insult, Rulmentul Brasov's workforce participated in several organized walkouts to protest ORS as Turkish-owned. At one point AVAS did try to get INA interested in Rulmentul Brasov, when INA reviewed sites for a bearing plant in the area. But INA declined and has built a separate plant in Brasov. After waiting more than a year, in August 2005, AVAS finally put together a formal system for bidding on Rulmentul Brasov, issuing a bid invitation announcement. Bidding pre-qualification and other documents are available from AVAS, and the AVAS website. In addition, the facilities of Rulmentul Brasov had been to inspection as was a "Data Room." Although AVAS has rebuffed all offers, the agency says it is still interested in entertaining more. But, it said it will also, "analyze all possibilities," for the operation. Founded in 1949, Rulmentul SA Brasov is Romania's largest bearing manufacturing facility. Under the RBR and URB (Uzina Rulmentul Brasov) brands, the company manufactures ball bearings, linear bearings, tapered roller bearings and needle roller bearings. Brand names are difficult to distinguish, however. RBR as a brand is actually registered by Rulmentul Barlad, the bearing factory in Barlad. URB, although it began as the brand for Rulmentul Brasov, eventually became a common brand name available for use by all of Romania's government-run bearing factories. Actual financial and operating information is difficult to obtain for RBR. As examples, the Romanian government has claimed employment was 5,200 at the same time RBR reported it stood at more than 6,600. Similarly, the government reported RBR returned unspecified "massive" profits on bearing sales of over USD $13 billion, while RBR computed sales at USD $4 million. Rulmentul Brasov, like many state-run businesses, has used government funding to claim profitability; government loans are used to pay day-to-day operating expenses, those loans are then immediately forgiven and "profits" ensue. RBR has another mountain of debt built up that has not been forgiven, but is ignored when presenting its finances. The IMF has made no formal announcement regarding Romania's failure to meet its 2005 deadline for selling off or closing Rulmentul Brasov.