State converts Simpo’s EUR 25 million bad debt into equity

The Vranje-based Simpo company has announced that the state has converted claims worth almost three billion dinars against the company into equity through a new share issue, further increasing its stake while reducing the book value of the shares.

In early July, the Serbian government decided to convert all claims from public revenues of Serbia, the Pension and Disability Insurance Fund, the National Health Insurance Fund, the National Employment Service and local governments into a permanent investment in the equity of Simpo and its nine affiliated companies as of June 30 this year.

The capital increase was carried out by issuing a regular share issue to a qualified investor – in this case, the state, in the amount of RSD 2.8 billion (around EUR 25 million). The company’s total core capital was thus increased from EUR 7.3 billion of subscribed and paid-in capital to RSD 10.1 billion.

The number of shares was determined based on the maximum amount of 7,157,265 shares issued by the Decision on Issuing Ordinary Shares of the Fifth Issue to a Qualified Investor for the Purpose of Increasing Simpo’s Capital, which together with the 18,426,792 ordinary shares issued so far amounts to 25,584,057 ordinary shares, without nominal value, with an accounting value of 396.8 dinars per share.

Given that there was no actual capital increase, but rather that it was carried out as an accounting maneuver, Simpo immediately after increasing the number of shares implemented the second part of the financial restructuring – a capital reduction. The aim of this dual move was to erase the company’s debts to the state and convert them into ownership, while at the same time clearing the accumulated losses from the past from the balance sheet, thus bringing the company’s financial situation into balance on paper.

As Simpo had accumulated losses from previous years amounting to as much as 5.34 billion dinars at the end of last year, the General Assembly decided to reduce the capital by that amount, thus erasing the resulting deficit. Thus, the share capital was reduced from 10.1 to 4.8 billion dinars, while the number of shares remained the same at 25,584,057, which means that none of the shareholders lost any shares, but their individual value was reduced. Since the total capital was reduced, the accounting value of one share fell from 396.8 to 187.89 dinars.

In this way, the state once again stepped in to save Simpo from blockade and bankruptcy by taking over the uncollectible debt towards it and converting it into capital, because a company whose debts and accumulated losses exceed its capital by law enters the zone of over-indebtedness and bankruptcy. This move formally brings the balance sheet within the legal framework. With this recapitalization, the state increased its share on paper from 57% to almost 70%, while together with other state entities and banks it owns almost 94% of the shares.

The state first converted Simpo’s tax debt into state shares in 2013 at the proposal of the then Minister of Finance Mladjan Dinkic. Part of the agreement was that the management of this Vranje-based company would commit to paying all taxes to the state and employee contributions from that moment on.

Simpo a.d. Vranje

Simpo Vranje

state claims toward Simpo

conversion of state claims toward Simpo into equity