REPORT
ON DETERMINING THE MARKET VALUE
OBJECT of Appraisal
AUTONOMOUS PART, consisting of the production
site and the site located in front of the production
site, along with the assets associated with
the production activities of Metallurgical
Plant Kremikovtzi and located on their territories,
as per accounting records submitted to us
PRINCIPAL
TSVETAN STEFANOV BANKOV – Receiver of KREMIKOVTZI AD (in bankruptcy ),
having its seat and head office in the city of Sofia, 1870 , Botunets, registered in the Trade Register to the Registry Agency with EIK 831642523
Date of appraisal: 15 November 2010
Validity of appraisal: 15 May 2011
To
Tsvetan Stefanov Bankov – Receiver of KREMIKOVTZI AD (in bankruptcy )
I. SUMMARY
OF THE REPORT ON THE APPRAISAL OF THE AUTONOMOUS PART, CONSISTING OF THE PRODUCTION SITE AND THE SITE LOCATED IN FRONT OF THE PRODUCTION SITE, ALONG WITH THE ASSETS ASSOCIATED WITH THE PRODUCTION ACTIVITIES OF METALLURGICAL PLANT KREMIKOVTZI, LOCATED ON THEIR TERRITORIES, AS PER ACCOUNTING RECORDS SUBMITTED TO US
Dear Sir,
We would like to present to your attention the valuation conducted for determining the market value of all assets available on the production site of Kremikovtzi AD (in bankruptcy) and on the site located in front of the production site of Kremikovtzi AD (in bankruptcy), made on the basis of accounting records submitted to us, using the asset net value method, individually for each asset, and the asset liquidation value method , individually for each asset, the liquidation costs related to the assets under evaluation not being taken into account in making the appraisal.
The effective date of the appraisal is 15 November 2010.
The facts and data presented in the report have been collected in the process of investigating the company in cooperation with the management of Kremikovtzi AD.
Three copies of the report are submitted.
The appraisal is conducted by a team of Consulting House AMRITA, consisting of the following persons:
Veselina Geneva
License for valuation of commercial enterprises
and receivables No 500100317
License for valuation of real estate No 100100980
License for valuation of machinery and
equipment No 300100354
Emil Ivanov
License for valuation of commercial enterprises
and receivables No 5001100369
License for valuation of real estate No 100101137
License for valuation of machinery and
equipment No 300100409
Magdalina Karastoyanova
License for valuation of real estate No 100100986
Lyudmila Djadjeva
License for valuation of real estate No 100100987
License for valuation of machinery and
equipment No 300100355
Ventzislav Popov
License for valuation of real estate No 10010988
License for valuation of machinery and
equipment No 300100357
Angelina Ivanova
License for valuation of machinery
and equipment No 300100356
Stanislava Cholakova
License for valuation of real estate No 100100989
The contractors vouch for the correctness of the methods used in the valuation, the data and the trustworthiness of the results obtained. Along with that, by putting their signatures they have certified that they do not have any interest with respect to the object appraised, which would influence the objectivity of the appraisal.
As result of the calculations made, a conclusion has been made about the value of the Autonomous part, consisting of the production site of Kremikovtzi AD (in bankruptcy) and the site located in front of the production site of Kremikovtzi AD (in bankruptcy) along with the assets associated with the production activities of Metallurgical Plant Kremikovtzi and located on their territories, as per accounting records submitted by Kremikovtzi AD
RECAPITULATION OF RESULTS
Fixed Assets
Account Market value Liquidation value
201 BGN 108 813 480 BGN 97 932 132
202 BGN 95 170 265 BGN 77 665 049
203 BGN 95 621 655 BGN 78 188 986
204 BGN 59 806 044 BGN 48 754 781
205 BGN 11 987 350 BGN 10 619 694
206 BGN 266 859 BGN 234 768
208 BGN 372 501 BGN 334 664
209 BGN 60 824 BGN 54 309
213 BGN 80 250 BGN 71 496
BGN 372 179 227 BGN 313 855 878
Items in stock
Market value Liquidation value
BGN 10 355 283 BGN 8 801 991
Account 207
Market value Liquidation value
BGN 2 551 052 BGN 2 168 394
Ferro-Alloys Plant
Market value Liquidation value
BGN 9 552 703 BGN 8 119 798
TOTAL VALUE :
Market value Liquidation value
BGN 395 000 000 BGN 333 000 000
______
CONTENTS
I SUMMARY
INTRODUCTION
Subject of assignment
Principal
Contractor
Standard of value
Term of validity of appraisal
Methods used in preparing the appraisal
Date of appraisal
INFORMATION MAP
GENERAL INFORMARTION ABOUT THE METALLURGICAL PLANT
RESTRICTIVE AND PERMITTING CONDITIONS
METHODOLOGY OF APPRAISAL
CONCLUSION
INTRODUCTION
Subject of assignment
Conducting an appraisal of the Autonomous part, consisting of the production site and the site located in front of the production site, along with the assets associated with the production activities of Metallurgical Plant Kremikovtzi , located on their territories, as per accounting records submitted to us.
1. Ore-Preparation Plant
2. Sinter Plant
3. Blast Furnace Plant
4. Steelmaking Plant
5. Coke and Chemical Plant
6. Railway Transportation Division
7. Cold Rolling Plant
8. Hot Rolling Plant and slab yard for storing and scarfing of slabs
9. Blooming Slabbing Mill – short-term assets and other fixed assets outside the slab yard
10. Fire – Fighting Service , warehouse “Fire Safety” and Gas-Safety Service
11. Metallurgical Refractories Plant
12. Chief Power Engineer Division, inclusive of: water supply system, power supply system, Technical gases Production Plant, Power plant, Mazut warehouse, Base for repair of power facilities, Electric repair base, Instrumentation and Automation;
13. Continuous Casting of Steel Complex
14. Scrap Processing Shop
15. Ferro-Alloys Plant – Kremikovtzi EOOD – equity participation
16. Independent Laboratory for Analyses
17. Heavy Machinery and Transportation Vehicles
18. Plant roads and highways
19. Chief Mechanical Engineer Division, inclusive of Mechanical Repair Plant, Base for Repair of Mechanical Equipment and Oil Supply System
20. Central warehouses
21. Technical Supervision Department
22. State Reserve and Wartime Stocks
23. Warehouse “Equipment”
24. Designing and large-scale construction, Library, Design and Construction Department
25. Information services
26. Central Technical Dispatch Department
27. Other assets on the production site not attached to the main units
28. Central administration – land and buildings, inclusive of a building consisting of tall and low parts, building of the Plant Dispatch Department, Canteen No 1, small -and large conference rooms, security guards, assets belonging to the former department “Privatization”, Cultural Centre, bus parking lot, Builders’ Centre, Building “Personnel Dept.” Building “Medical Centre”.
Principal
Mr. Tsvetan Stefanov Bankov – Receiver of Kremikovtzi AD (in bankruptcy) having its seat and head office in the city of Sofia, 1870 Botunets quarter, registered in the Commercial Register at the Registry Agency under EIK 831642523, as per a contract for assigning of the appraisal order.
Contractor
Amrita Consulting House OOD, with team head eng. Veselina Geneva.
Standard of value
The appraisal report complies with the requirements of the standards of business evaluation as adopted in the Regulation on the Analyses of the Legal Status and the Privatization Valuations and for the Terms and Procedure for Licensing of Appraisers (Adopted by a Decree of the Council of Minsters, promulgated in State Gazette No 57 of 11 June 2002); SBO: 1,2,3,5, 6 and 7/2002.
All analyses, hypotheses, approaches and methods used in preparing the appraisal are conditional upon the requirement for the appraisal to comply with the standard of “Fair Market Value” (FMV) in accordance with the Regulation on the Analyses of the Legal Status and the Privatization Valuations and for the Terms and Procedure for Licensing of Appraisers (Adopted by a Decree of the Council of Minsters, promulgated in State Gazette No 57 of 11 June 2002) – the value expressed in terms of a cash equivalent, at which a property would change hands, passing from a willing and well informed seller to a willing and well informed buyer, in the environment of an open (free) market, in which neither of the parties acts under any compulsion or pressure and both have reasonable knowledge of the relevant facts.
The report also considers one of the versions of the “liquidation value” of the asset. It is a market value too and it usually coincides with or is close to the value at which an asset is realized in an eventual forced sale. Usually the liquidation value (LV) is determined on the basis of the market value (MV) and is one of the basic factors in cases where the property is to be sold urgently for non-market reasons. The reduction as compared to the fair market value varies between 10 and 50% depending on the asset itself, its basic designation, its characteristics and scope of application, the current condition of the local market (salability -liquidity) as of the date of the appraisal.
Validity of appraisal
The appraisal has a limited time of validity – six months as from the date of the report if the economic conditions remain basically unchanged. After the expiry of this term, the results of the appraisal should be reconsidered and updated or re-confirmed if there is no change.
Methods used in the appraisal
The appraisal is made by using the method of the net value of assets - individually for each asset, and by using the liquidation value method - individually for each asset, the liquidation cost of the assets that are being evaluated not being taken into account.
Date of appraisal
15 November 2010
INFORMATION MAP
GENERAL INFORMATION ABOUT THE INTEGRATED STEELWORKS
Metallurgical Plant Kremikovtzi is one of the largest steelworks on the Balkan peninsula. It was designed and equipped with lines, equipment and technology for a complete metallurgical cycle – starting from the extraction of iron ore to the production of finished products. It is designed to produce iron and barite concentrate, coke, hot metal, EAF and converter steel, ferromanganese and ferrosilicon, hot rolled coils and sheet, cold rolled coils and sheet, tin-coated sheet, coils and sheet with zinc and plastic coating.
The majority shareholder of Kremikovtzi AD is Finmetals Holding AD (bought in August 2005 by Global Steel Holding Limited) with 71% of the issued share capital and the state – in the person of the Ministry of Economy, Energy and Tourism with a minority stake (25.29%).
The company was set up in 1959 as Metallurgical Plant “Kremikovtzi”.
The erection of the production facilities started in 1960 and the first installations were put into operation in 1962.
In the period of planned economy, the initial purpose of the plant was to contribute towards the industrial development of Bulgaria by developing the ferrous metallurgy in the country. The iron ore deposits locally available (iron content 29-30%) was a pre-requisite for the selection of the place for the erection of the plant.
The first production facilities were put into operation in 1963: Ore-preparation Plant, Sinter Plant, Coke Battery No 1, Blast Furnace No 1, the Power Plant and the Repair and Mechanical plant. During the next 10-15 years the other basic facilities in the technological flow were put into operation: the Steelmaking Plant with the electric arc furnaces and convertors; the Blooming-Slabbing Mill; Hot Strip Mill 1700 for hot rolling; 250 wire rod mill; the pipe rolling mill; Cold Rolling Mill; Shop for tin coating; shop for galvanization and shop for PVC-coating; Ferro-alloys Plant. In the meantime the Plant for Production of Technical Gases , the water supply facilities and the purification stations were put into operation; all the technical infrastructure of the metallurgical plant was also built at that time.
Following the adoption of the Commercial Act in Bulgaria, Kremikovtzi steelworks was registered as a joint stock company with an initial capital of 720363000 non-denominated leva , distributed in 720363 shares, each with face value of BGN 1000. Subsequently – in December 1995, the capital was raised to 18517 515 000 non-denominated leva (18517 515 interests) after the fixed assets were re-valuated in accordance with the requirements of State Decree No 179.
In the process of mass privatization in 1996 and 1997, 3.71% of the shares were bought by private investors, these shares being listed on the Sofia Stock Exchange.
On 14.06.1999 a contract was signed with Finmetals Holding AD for the privatization of 71% of the capital of the company.
In August 2005, Global Steel Holdings Limited (GSHL) bought the majority stake of Finmetals Holding AD in Kremikovtzi AD, thus acquiring the right to manage Kremikovtzi AD.
Technology
The process flow of Kremikovtzi AD is designed to ensure a complete production cycle – from the processing of iron-containing raw material to finished products. The iron-containing raw material is processed by the process sintering to the semi-product sinter. The finished sinter is fed to the blast furnaces along with pellets, DRI, coke and additives in a fixed proportion to produce hot metal which is further processed to steel.
Depending on the technological process applied, the steel in this steelworks can be produced by two methods – either by conversion of hot metal in oxygen converters with top blasting or by processing of steel scrap in electric arc furnace (EAF). The steel making plant is equipped also with a ladle furnace – for alloying, refining and treating the steel with inert gases, as well as for vacuuming. The casting of the liquid LD and EAF steel is done on casting machines for slabs.
The sinter machines, the blast furnaces, the converters, the electric arc furnace and the machines for continuous casting are equipped with gas-cleaning installations whose technical level corresponds to the level of the technique of the time they were put into operation.
The rolling plant is equipped with a semi-continuous mill “1700” for the production of hot rolled coils and sheet.
The facilities for production of cold rolled products include two continuous rolling mills “1700” and “1200”, one continuous pickling line for HR coils, two temper mills, lines for continuous hot dip galvanizing and for tinning, bell furnaces and lines for continuous annealing, cutting lines, etc.
The strategy for development of the company envisages renovation, modernization and implementation of automated control systems, to be carried out step-by-step, as well as other initiatives. All these aim at improving the quality of the products, reducing the processing costs, respectively reducing the production costs and expanding the product mix.