From boom to bust: Romanian firms bite the dust

Local companies involved in retail, either as producers or retailers, were the worst affected due to the drop in consumer spending. Pundits expect more tough times to come this year, which may increase the list of insolvencies in Romania. So far, in the first ten months of last year, up to 20,000 companies were involved in insolvency procedures, with an increasing percentage declaring insolvency voluntarily.

IT&C retailer Flamingo struggled under the specter of bankruptcy throughout last year. It tried to restructure a loan with ING Bank but, having failed to do so, finally filed for insolvency in December. The company, which has a EUR 17.5 million credit line with ING Bank, is now under the judicial administration of RVA Insolvency Specialists. The retailer also owes money to UniCredit Tiriac Bank and to BRD.

Flamingo was taken over by Romanian businessman Dan Adamescu last year through several stock exchange transactions. The retailer had started a bonds issuance to attract EUR 7 million of financing which would have kept it afloat. The issuance should have been completed by now, but was canceled by the National Securities Commission (CNVM) until the firm’s affairs were settled. Its shares were also suspended from trading on the Bucharest Stock Exchange (BSE).

Flamingo saw its sales fall by around 55 percent in the first nine months of last year, according to the most recent data. In 2008, the firm posted EUR 200 million in sales and was among the top three IT&C retailers in Romania. Some of the company’s stores are still operational but the retailer closed down 22 in 2009 and downsized its staff to 700 at the end of last year.

Nor was it a good year for local retailer PIC. The hypermarket operator saw 6,000 employees and sales of EUR 150 million in 2008 slump to a single opened store with 1,000 workers at the end of last year and a debt of EUR 60 million. The last operational store was to be closed down at the beginning of this year, according to the firm’s management.

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PIC, owned by Cornel and Ilie Penescu, had to suffer the arrest of Cornel Penescu last year on bribery charges. Penescu is also the owner of FC Arges soccer club and his arrest was linked to the alleged bribery of a soccer referee as well as employment inspectors.

PIC owns five hypermarkets across Romania but has decided to quit the retail business altogether for a while. The group is also active in construction, food production, taxis, printing and distribution.

Elsewhere, K Tech Ultra Pro, which used to run the Ultra Pro IT&C retail network, has amassed a EUR 28 million debt and closed down its stores, trying to restructure. The company is under the judicial administration of BDO Business Restructuring and the next stage of its bankruptcy trial is in March this year.

While IT&C retail seemed worst hit, fashion did not escape unscathed. Footwear retailer Leonardo was made insolvent in October last year. The company, owned by Romanian businessman Florin Panea, is trying to reorganize to get back into the black, despite falling sales last year. Although it closed down 30 shops which were not profitable, it continued opening planned new stores. Leonardo had run up EUR 100 million in debt and is working with Casa de Insolventa Transilvania to restructure its liabilities. At the end of 2008, the shoe firm had 200 stores in Romania, Hungary, Bulgaria and the Republic of Moldova.

The retailer has been greatly affected by the economic crisis, with sales dropping by 30 percent in 2008 on 2007. In previous years, Leonardo had expanded aggressively. To supply stores, it bought more merchandise, which led to significant debt to suppliers, according to Ensight Management Consulting, which was in charge of reorganizing Leonardo last year.

Another firm hit by the lack of financing and by sinking sales was meat producer Medeus. Its owners had applied for insolvency to reorganize and re-schedule payment. Medeus’s debt reached EUR 15.3 million, with a bank loan of EUR 6 million. The lack of liquidities to pay suppliers was the main reason for the firm’s difficulties.

Meanwhile, local copper producer Cuprom has been insolvent since the end of 2008 and throughout last year tried to resolve its financial problems.

Retailer Spar applied for insolvency mid-last year. The local network, which is owned by Ioan and Floare Cuc who bought the license to run stores under the international brand in Romania, had been operational since 2006. In 2008, Spar Romania reached a turnover of EUR 44 million, after a period of aggressive expansion, while its debt reached EUR 30 million.

The real estate sector felt the lack of cash keenly. Among the most prominent insolvencies last year was that of developer Mivan Kier, which built the Liberty Center mall and the New Town residential project. The developer had run up a debt of EUR 20 million.

Corina Saceanu