On election eve, Sweden lets an unprofitable business go under
Sweden's tough industrial policy collided with a strong business leader earlier this week, precipitating the bankruptcy of a major offshore-oil service company. The big business failure came just days before Sunday's national elections. Some factions contend that the government was out to break a prominent entrepreneur; others say the Social Democratic government showed it would allow unprofitable businesses to fail.
Consafe, which operates special offshore oil platforms in the North Sea and around the world, declared bankruptcy after more than two months of negotiations with state-owned shipyards and private bank creditors. Those talks failed to produce a financial rescue plan.
Consafe was the only company of its kind in Sweden, founded and led by Christer Ericsson, a former naval officer and sea captain. In early July, Consafe announced it was having trouble paying interest and principal on some 2.3 billion kronor (about $265 million) in state-guaranteed debt because of a worsening offshore-oil market. It asked its creditors and guarantors, including Swedyards, the state-owned shipyard group, for help.
Throughout the summer, in closed-door negotiations, Swedyards made proposals to keep Consafe afloat, but they all had one factor in common: Mr. Ericsson would lose control of the company. Ericsson said he had been open to refinancing ideas, but he wasn't going to concede control of his company.
Roine Carlsson, Sweden's deputy industry minister responsible for state-owned industries, made it clear at the end of July that there would be no special treatment of Consafe by Swedyards. After billions of kronor were poured into shipyards and other state industries during the 1970s, the current Social Democratic administration of Prime Minister Olof Palme decided there would be no new money for unprofitable businesses, even if jobs were temporarily lost.
Falling oil prices and uncertain energy markets have reduced drilling and exploration in the world's relatively expensive and hazardous offshore oil and gas fields. Older and well-developed fields, such as those off southern Norway, employ fewer workers and have less need for employee accommodation, such as is offered by Consafe's modular platforms.
In the 1970s, Ericsson pioneered the idea of outfitting cargo containers as living quarters and stacking them on huge platforms that became miniature towns for offshore oil workers. He was also farsighted enough to see the end of manpower-intensive offshore activity, both as fields reached maturity and because of technological advances. As a result, in the early '80s, Consafe diversified into ``multipurpose support vessels'' (MSVs), expensive and sophisticated platforms that support divers and equipm ent working on the sea bottom.
Ericsson ordered two MSVs from Gotaverken Arendal, a subsidiary of Swedyards in Gothenburg, in what was partly a gesture of goodwill toward a Swedish industry sorely in need of orders. Loans taken to finance these vessels made up the bulk of Consafe's debt, which it could no longer service as its losses on idle and unprofitable platforms soared during the summer.
But Ericsson is not seen as blameless in the collapse of Consafe. He was warned as early as 1983 by the Swedish State Ship Credit Guarantee Council of risks involved in building expensive MSVs. In early 1984 Ericsson went public with 1 million shares of Consafe at what later proved to be a very high issue price. By the end of '84, with the offshore market weakening, Consafe traded in Stockholm at less than half its issue price.
Shortly before the bankruptcy, Ericsson offered to buy back all Consafe shares held by company employees for 300 kronor per share, somewhat less than the issue price of 350 kronor. After Consafe petitioned for bankruptcy, the Stockholm stock exchange said it would permit trading in Consafe for a limited time so shareholders could realize their losses for tax purposes.
Although some Swedish conservatives contend the Consafe drama was an effort to ``break'' one of the nation's most prominent entrepreneurs, they cannot tell voters ahead of Sunday's national election that Mr. Palme has been soft on unprofitable industries.
``Everybody blames everybody else,'' said a headline in Dagens Nyheter, Sweden's largest daily newspaper.