Banks are apparently losing patience with Alba, the Berlin waste management and recycling company that is struggling with debts and low prices in its core scrap steel business.
Creditors are urging sale of the company’s service business as soon as possible, sources familiar with the matter, told Handelsblatt. One of them referred to the lucrative division as Alba’s “family silver.”
The service division, which mostly organizes the recycling of packaging material waste, fell into the hands of Berlin-based Alba through the 2011 acquisition of the publicly-listed Interseroh waste group. The subsidiary was renamed Alba SE and earned €11 million, or about $12 million, in the first half of 2015.
The banks hope for proceeds of between €350 million and €500 million from the sale, the sources said. The sale is supposed to safeguard a settlement negotiated by the banks and assure that the financial institutions, including Commerzbank, get back the money they loaned.
Alba said that altogether it has net financial liabilities of around €415 million. But adding in leasing liabilities, pension obligations and other debts, the Standard & Poor’s ratings agency lists about €640 million owed, or about $696 million.
We expect that without new debt financing, the liquidity of the group could weaken considerably during 2016. Standard & Poor's
S&P estimated Alba’s pre-tax earnings last year at no more than €140 million. The Alba Group has not disclosed its profits for 2015.
Alba is headed by co-chief executives, the brothers Eric and Axel Schweitzer. Eric Schweitzer is also president of the Association of German Chambers of Commerce and Industry.
Three weeks ago, Axel Schweitzer informed Handelsblatt of a partial divestiture of the service division “in coming months.”
But a call for bids has already been issued to investment banks and should be completed in the coming days, the sources said.
The Rothschild financial group, which is also seeking an investor for Alba's business in China, is in the running. Rothschild would not comment in response to an inquiry.
A few weeks ago, the Schweitzer brothers – in close consultation with the banks – abandoned their search for well-funded minority shareholder.
Now Plan B sees two separate partial sales – one for the recycling business in China and the other for the service sector. Alex Schweitzer said there is already a declaration of intent by a possible investor for the Asian business, and that a majority share could be sold.
“We intend to sign a deal this summer,” he said.
But some banks owed money don’t want to wait so long, according to sources at three involved financial institutions.
In a statement, Alba said banks are participating in its plan "to complete the selection of an appropriate partner for the service division by the end of the year.”
A downgrade by S&P last week most certainly made investors more nervous. The agency assigned the overall company a B credit rating, meaning adverse business or economic conditions could threaten its ability to pay back loans.
S&P was even more critical of Alba’s unsecured loan of more than €203 million. It reduced the bonds due in May 2018 to CCC, which corresponds to more than 30 percent risk of default within 12 months. Up to now, the bond price has remained stable at 86 percent.
Most disturbing for S&P analysts is that the bond is due in two years, meaning Alba must pay back nearly €200 million in further debts by October 2017.
“We expect that without new debt financing, the liquidity of the group could weaken considerably during 2016,” the ratings agency wrote in a report.
S&P said stagnation in the scrap steel market, Alba's main field of activity, was the underlying reason for the bleak outlook.
In 2014, the group took in almost half its revenues in scrap steel, with €1.25 billion. At the same time, however, Alba listed pre-tax losses of €55 million.
A tough austerity program brought the sector just barely into the black for the first half of last year, but S&P does not expect a fundamental improvement for the time being.
Alba management is flabbergasted by the credit downgrading and points out that involvement in the difficult scrap-metal business has been reduced along with costs. This reduced indebtedness last year by €100 million and improved financial results, company officials said.
Things could have been worse without the vigorous intervention of the two chief executives, who recently disposed of several money-losing scrapyards.
The dire situation is shown by former market leader Scholz, which is fighting to survive. A steep decline in the price of iron ore means scrap metal has scarcely been profitable since 2011, and now the Esslingen-based family firm is deeply in the red.
Up to now, the company’s search for an investor has been fruitless. The Toyota subsidiary Tsusho, which was said to be coming to the rescue in 2014 with a purchase of nearly 40 percent of shares, now refuses to inject any more cash.
Underwriters are especially nervous about of a mid-cap bond worth €182.5 million issued to Alba’s ailing competitor. To avoid a short-term liquidity problem and to help in searching for investors, they canceled an interest payment due March 8.
The Scholz bond is due in March 2017 and is rated C by Euler Hermes.
Christoph Schlautmann covers the waste management sector for Handelsblatt. To contact the author: [email protected]