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CG Hungary liquidation – new developments

Hungary: The intervention of the Hungary Government in the liquidation of CG Electric Systems Hungary Ltd. took another interesting turn with the news that Zsolt Barna will not buy but rent the liquidated manufacturing assets and inventory plus labor from the Hungarian Government.

Zsolt Barna, up to recently one of the VPs of the Hungarian OTP Bank, has no previous connection with or involvement in the electrical power transformer manufacturing industry. He is, however, the owner of a Hungarian electric utility construction company. This company is mostly active in Hungary.

A new company entity was registered and his resignation from the Bank was accepted and announced all within a matter of days after the appointment of the government liquidator.

In July 2020, the liquidation of CG Power Systems Hungary was announced. The Hungarian court appointed a liquidator. The Hungarian government then announced that CG (formerly Ganz Transelektro Ltd.) would be considered a national asset and subsequently replaced the court appointed liquidator by that of the government.

The Ganz Works (Ganz and Partner Iron Mill and Machine Factories) or group of companies, at the time the third largest industrial enterprise in Hungary, was named after its founder Ábrahám Ganz. Ganz Works manufactured tramcars, ships, steel bridges, and high voltage equipment. It had been in operation since 1844.

This liquidation decision and announcement impacted both the transformer manufacturing and rotation machine plants located at Tapiószele some 98 km outside Budapest. The high voltage gas insulated switchgear (HV GIS) manufacturing operations were terminated in 2017.

The exact details of the agreement between Zsolt Barna and the Hungarian state are not clear. However, it is generally considered as a smart move circumventing what many have described as the biggest stumbling blocks in finding a new investor and owner for the assets of CG Hungary – a historical loan to the value $33 M (€28 M) from the Hungarian Development Bank.

This loan burden predates the purchase and ownership of the Indian Crompton Greaves. Crompton Greaves, in its 2006 purchase agreement, agreed to take over the loan liabilities of the entire Transelektro Group, which had been one of the business entities within the Trans Electro Group.

Any prospective and new buyer would have been called upon to take on the burden of this loan, which requires repayment in 2022. This was additionally complicated by the fact that the asset and loan burden ration and value of the company had changed substantially over time. The historical value of CG Hungary had been substantially eroded with the closure of the Hungarian GIS factory, transfer of technology and GIS manufacturing equipment to CG India, the closure of the steel manufacturing plant, and the sale of all GIS business rights associated with the GIS Service operations in Kuwait and the Middle East.

The government deal seems to have bundled and secured the remaining critical factors required to ensure a quick restart – access to the transformer and rotating machines manufacturing assets, access to the intellectual property and designs, and, most importantly, access to the labour force.

It is understood that the Government created a Wage Guarantee Fund with the intent to retain employees and guarantee their income. The critical question that begs answering is simply as to whether this fund would be sufficient to guarantee the incomes and remuneration of all staff until operations commence, and whether this will be sufficient motivation to ensure the retention of critical skills and prevent a brain drain.

The asset and employee rental agreement with the Hungarian Government could ensure an early return to production thus allowing the “new caretaker owner” to capitalise on the remaining order book if an agreement with critical suppliers can be reached.

In contrast to the anticipated Hungarian restart time frame, the liquidation process of the CG Belgium entities, initiated in February 2020, has still not been completed, and the new owner has not been formally announced. In the likeliness that the stock exchange listed EIC of Saudi Arabia will be announced as the successful Belgium bidder, it is expected to take some time before this Belgium factory will be able to resume production. One of the remaining stumbling blocks would be retention of critical and key staff as a great many of the critical employees found employment elsewhere and could be reluctant to return to the new owner.

The move by the Hungarian government to place the employees on their payroll will resolve this challenge.

It some circles, the agreement with Zsolt Barna is, however, at best seen as a temporary measure to solve the present crises. The ability to restructure the company and compete in a highly competitive post-corona global market will be key to the long-term sustainability of this Hungarian asset. It will require more than a cordial relationship with the present government, transformer orders, and government contracts.

As is often the case, the empty factory buildings are the only things left standing post liquidation. In the shadows of the factory buildings – the loyal and committed work force wait, ready to reapply for their jobs. They have watched the former managers and owners arrive and depart. They wait, in hope that the new owners will engage in discussions and ensure that the mistakes of the past are not repeated. The skills and competency of these workers are, after all, like the buildings − the foundation and corner stones of the proud Ganz factory and product tradition.

It may serve the new caretaker and future owners of Ganz well to engage and listen to the people that had seen different owners and managers come and go.

 

Author: Chris Gerber

 

*The opinions expressed in this article are those of the author and they do not necessarily reflect the opinions or views of the Transformers Magazine and Merit Media Int.

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