Banks save Metallgesellschaft at eleventh hour

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METALLGESELLSCHAFT was hauled from the brink of collapse at the weekend as dissident creditor banks offered to back an expensive rescue operation for Germany's 14th-biggest industrial group.

In 10 hours of tense bargaining in Frankfurt on Saturday, Deutsche and Dresdner banks, both large shareholders in Metallgesellschaft, were obliged to shoulder a larger share of the refinancing as the price for getting the rescue deal passed.

The two banks will carry half of the DM700m ( pounds 268m) new credits for Metallgesellschaft. Other elements in the package are a DM1.4bn capital increase and conversion of DM1.3bn of debt into equity. The agreement represents a significant victory for Barclays Bank and other French and American banks which are lenders to Metallgesellschaft.

They had argued that the German banks should shoulder more of the burden of the financial restructuring as they are also shareholders in Metallgesellschaft.

Barclays, which is owed pounds 59m, will decide today whether to accept the new proposals, which will mean Metallgesellschaft's main lenders, Deutsche and Dresdner, providing more equity and financing than the Germans originally proposed.

The deal cuts the amount of capital it will provide by 90 per cent from the original figure suggested by the German banks.

Welcoming the settlement after 10 days of dramatic haggling between creditors and shareholders, Metallgesellschaft's new chief executive, Kajo Neukirchen, said that he had the basis for getting on with massive restructuring.

In addition to disposing of several subsidiaries, Mr Neukirchen said 'significant' cuts in the 57,000 workforce would be necessary. 'When a company is in such a bad state as Metallgesellschaft, there can only be a short-term and not a long-term time frame for job cuts,' he said.

The fate of the metals, engineering and environmental technology conglomerate, comprising 258 companies, was balanced on a knife- edge for much of last week as a sizeable group of creditors pursued a course of extreme brinkmanship, trying to force a better deal from the big institutional shareholders.

Many foreign creditors, including Barclays and a cluster of leading French banks, had openly rebelled at the amount they were being asked to put into the group.

In particular, foreign creditors felt that Deutsche and Dresdner banks, who are represented on the supervisory board of Metallgesellschaft, had failed to spot the disaster engulfing the firm, and therefore had a greater responsibility for the rescue efforts.

Barclays made a rare public statement on a large company restructuring last week when it suggested that the rescue should be more in line with 'London rules'. These would involve a more co-ordinated approach to the rescue by Metallgesellschaft's 120 banks. The British bank wanted a thorough audit of the company before any plan got the final go-ahead, and the German banks agreed to this in Saturday's meeting.

Barclays is understood to be far more comfortable with the modified proposals, but a final decision awaits a meeting by its credit committee today.

The last-ditch talks on Saturday between the 120 creditor banks were described by participants as extremely acrimonious.

'It was absolutely brutal in there,' said one foreign banker.

Virtually the entire management board was sacked in December.

View from Frankfurt, page 28