About the Company OSINEK, a.s.’
Features & Activities
The company’s newest history dates back to the 1st April 2000. Prior that date, the company in its capacity as the former producer of asbestos-based products, whose production has been stopped in the 90s of the last century due to a health hazardous nature of its production, had acted merely as administrator of the outstanding company’s financial assets, without being involved in any tangible economic activity. Further to its relocation and upgrade of both capital sources, as well as human resources, the company, as a 100 % owned subsidiary of the National Property Fund of the Czech Republic, has been found as qualified and capable so as to have been appointed by the Czech Republic’s Government, to become a vehicle for stabilization in the company named VÍTKOVICE, a.s., by virtue of implementing the Governmental Resolutions Nos. 181/2000 and 340/2000.
VÍTKOVICE, a.s., was a major industrial company in the North Moravia region at that time, as it ranked among the biggest producers of the steel products, heavy and power systems engineering products and steel structures. As result, this company was rated as major employer not only within the regional merits, but also in view of the Czech Republic’s labour market. Due to many subjective, as well as objective reasons, VÍTKOVICE, a.s., has fallen into deep liquidity crisis and became vulnerable to the acute threat of bankruptcy. At that time, the liquidity crisis substantially reduced the company’s potential in terms of both production and sales. Thus, the objectives set forth for OSINEK, a.s., under the above quoted governmental resolution, were clear and obvious: to overcome the liquidity crisis in VÍTKOVICE, a.s. with the use of appropriate financing instruments, so that this company could successfully pass through the voluntary composition with its creditors and would become eligible for privatisation.
Therefore, the tolling method has been chosen as the most suitable for a given purpose. Under this method, the external financial sources are employed to assist the producer’s ongoing production, however, such sources are not available directly to the producer suffering from the liquidity crisis. They are instead made available to an independent, separate company non-associated with the producer, i.e. the provider of tolling financing, who is then responsible for purchasing material and energy inputs for manufacture of steel and engineering products, ordering such products’ manufacture by the producer against the tolling fee and selling such products to the customers for the benefit of the provider’s account. The tolling method is also able to provide sufficient protection for the current assets originating from the use of external sources, because such assets are owned by the tolling financing provider, i.e. the company separate from, and non-associated with the producer at each stage of production cycle.
In order to get the tolling started, the National Property Fund of the Czech Republic has adopted decision on OSINEK, a.s.’ relocation to Ostrava, as well as on appointment of the new Board of Directors and Supervisory Board. Further to recruitment of highly qualified accountants and other employees, and upon the completion of extensive organisational, material and legal preparations, aimed overwhelmingly at the contractual background for the tolling, i.e. the contracts for supplies of raw material and energy, the tolling contracts and the contracts for sale of the products, the new mission of OSINEK, a.s. has commenced on the 1st April 2000, first focused on financing for the steel products’ manufacture, and later in the year also focused on financing for the engineering products’ manufacture.
Whilst the tolling for steel products has covered the full extent of such mass production, the tolling for engineering products focused, from the outset, on chosen major contracts only, provided they were able to meet the economic criteria of profitability and provided the end user has agreed with such contracts’ assignment from VÍTKOVICE, a.s. to OSINEK, a.s. The sources deemed necessary for such financing were obtained from Konsolidaèní banka s.p.ú Praha (“Consolidations Bank, State Finance Institution, Prague”), which subsequently transformed itself into Èeská konsolidaèní agentura (“Czech Agency for Consolidations”), without any impact of such transformation on existing relations between the tolling partners. The credit link opened for the steel products’ manufacture at amount of CZK 1.8 billion has been subject to draw – down to the full extent. The credit link opened for the engineering products’ manufacture at amount of CZK 1.0 billion has been subject to draw – down to the extent of 60 % over the past period.
Following the restructuring within VÍTKOVICE, a.s., whereby core production divisions converted into the said company’s subsidiaries during the period 2001/2002, the tolling contracts were adjusted accordingly. The flow chart below explains the circulation of the material and financial sources within the tolling framework:
In addition to the material and energy inputs for production such as purchased from and paid to the suppliers, the tolling fee and the commissions on purchasing and sales agencies paid to the producers of the products, OSINEK, a.s., in its capacity as the tolling financing provider, is also in charge of the sales related cost coverage, including in particular cost incurred on quality inspections, transportation and insurance.
In accordance with conditions and terms of the respective credit agreements, all monetary expenditures relating to the tolling financing are, as for their purpose, subject to scrutiny provided by the external inspection company - SGS Czech Republic, s.r.o.
The OSINEK, a.s.’ activities, such as performed during the past period, proved to have been effective because, as a result of the tolling arrangement, it was possible not only to sustain the operations of major producer of the steel and engineering products and to eliminate the negative impact of its financial instability, but also to restore the trust and confidence of its customers, as well as, in particular, of its suppliers who, as VÍTKOVICE, a.s.’ creditors, were willing to suffer a partial losses having arisen from the said company’s voluntary composition with its creditors and had accepted such composition of the debt.
VÍTKOVICE, a.s., was successfully privatised in the second half of 2003, in parallel with the tolling arrangement vis-a-vis its engineering subsidiary. Further to that, the Agreement on Closing and Settlement of Tolling, providing for the closing of the tolling regime and repayment of the loan in this year, became effective.
According to its strategy, and having won relevant tender such as opened by VÍTKOVICE, a.s. in 2002, in which tender there was 6 participants, OSINEK, a.s. purchased the 98,96% package of shares in VÍTKOVICE STEEL, a.s. As result, OSINEK, a.s. continues in providing the tolling financing vis-a-vis its named subsidiary as of the 1st April 2002.
In accordance with the Government of the Czech Republic Resolutions Nos. 477/2002 and 628/2002 relating to the privatisation of the Czech Republic’s ownership interest in the regional electricity distributing companies, OSINEK, a.s. purchased 51% package of shares in ÈEPS, a.s. (“Czech National Grid Company”).
The Authority for Protection of Economic Competition issued its approval concerning both investment transactions. In connection with the aforesaid, OSINEK, a.s., has increased its registered capital up to the current level of CZK 15 834 million during the period 2002 – 2003.