Rivals’ bid to stop Holzmann aid ‘doomed’

Date: 27/04/2000

By Renée Cordes

ANALYSTS predict that German construction firms' efforts to convince the European Commission that Berlin's planned rescue package for rival Holzmann contravenes Union state aid rules will fail, even though the subsidy will cause some distortions in competition.

The European Commission warned last week that it had 'serious doubts' about the need for the €125-million bailout package promised by the German government as part of an overall 2-billion-euro plus restructuring plan for the troubled construction giant.

Commission officials have asked German authorities to provide a more in-depth analysis of the plan, questioning whether the aid is essential to make the company financially viable and is limited to the minimum amount necessary. They are also seeking assurances that adequate measures will be put in place to mitigate any potential adverse effects on competitors. 'There are, furthermore, doubts as to whether the plan contains sufficient measures to uncover all dubious liabilities and to find realistic solutions with respect to areas that bear the risks of losses in the long run,' said the Commission, which has hired an outside consultant to assess the plan.

Competition officials are also likely to question Holzmann's agreement with employees which obliges them to work longer hours for a limited period for the same pay. Critics claim this discriminates against other firms which are automatically bound by industry-wide pay agreements.

However, analysts believe that the Commission will clear the aid despite these concerns, as the amount of money coming out of state coffers forms a relatively small part of the overall bailout package. 'In many ways this aid was just a symbolic gesture,' said Karl Debenham, an analyst at Merrill Lynch Global Securities. 'Many of Holzmann's competitors will be biting their teeth in fury, but they have little hope of challenging this.'

A spokesman for Holzmann insisted the German authorities had already provided regulators with details of the aid package. The company argues that the money will eventually be paid back in full, and does not therefore constitute a hand-out.

The Commission opened a full-scale investigation into the rescue plan in January amid doubts that the package would be adequate to return the firm to profitability. The company has blamed its losses on 'breaches of duty' by former executives, who have been accused of knowingly concluding bad real-estate deals in Germany in the early 1990s.

Like its competitors Hochtief and Bilfinger und Berger, Holzmann has been seeking to dig itself out of this hole since the German construction industry began to slump in early 1995. In 1998 alone, the number of new dwellings built in Germany plunged by 14% compared with the previous year.

Analysts predict that German construction firms' efforts to convince the European Commission that Berlin's planned rescue package for rival Holzmann contravenes Union state aid rules will fail, even though the subsidy will cause some distortions in competition.