Zombie Firms in Finland Suck Up State Funds as Debt Load Swells

Finland is pursuing a failed policy of using public funds to prop up companies with no hope of surviving on their own, according to the head of the country’s biggest business park operator, Technopolis Oyj.

“We’re putting a lot of money into saving old industries,” Technopolis Chief Executive Officer Keith Silverang said during a March 10 meeting in central Finland with Pekka Haavisto, the minister in charge of managing state assets. “It’s a waste, we can’t save them.”

Finland’s economy has contracted for three of the past five years, depleting state coffers and destroying jobs. As demand for the nation’s forestry products and mobile phones evaporates, Finland has struggled to replace those markets with new growth engines. Industrial production slumped an annual 7.5 percent in January, falling for a 15th consecutive month.

Silverang is urging the government to change its policy and help Finland’s economy recover by channeling funds into growth industries. In a Jan. 26 open letter, he criticized the administration of Prime Minister Jyrki Katainen for providing “terminal care” to failed enterprises instead of supporting growth industries.

The state, through its asset management unit Solidium Oy, is investing about 195 million euros ($270 million) in Outokumpu Oyj (OUT1V), a stainless-steel company that hasn’t booked a profit since 2007. It also accumulated a 16.7 percent stake in Talvivaara Mining Co. (TALV), a nickel miner that’s being restructured in an effort to save 500 jobs. Shares in the company have plunged 87 percent over the past 12 months.

Divestment Strategy

Such investments are making it harder for Solidium to deliver the dividends the state needs to plug its budget deficits. To make up for the shortfall, the unit is resorting to divestments to generate cash.

Solidium sold 1.6 percent of its holdings in TeliaSonera AB in September and put some of the proceeds toward paying the government 800 million euros in dividends. Solidium collected 397.6 million euros in dividends last year from the 12 companies in its portfolio. A year earlier, it sold its 14.9 percent stake in Sponda Oyj, also to generate returns.

“We’ve sold shares where the strategic interest no longer exists and we’ve bought shares in companies we have wanted to support for one reason or another -- where we’ve deemed it important to keep certain production or jobs in Finland,” Haavisto said in an interview. “I see no dramatic changes to this policy.”

Angry Birds

At Katainen’s opening address at Slush -- a Helsinki conference that has expanded into the Nordic region’s biggest startup event -- he praised a group of startups that have managed to propel themselves out of the nation’s economic malaise. Success stories include Supercell Oy, valued at $3 billion in the sale of a stake to Japan’s SoftBank Corp., and ‘Angry Birds’ maker Rovio Entertainment Oy. The government hasn’t invested in either firm.

Finland set up Solidium in 2008 to manage its holdings in listed companies where the state has less than half the shares. The stakes it has in Fortum Oyj (FUM1V), Neste Oil Oyj and Finnair Oyj are managed directly by the prime minister’s office.

TeliaSonera and Sampo Oyj (SAMAS) account for more than 60 percent of Solidium’s 7.7 billion-euro portfolio. Solidium last month sold 450 million euros worth of shares in Sampo and 350 million euros of its convertible bonds.

“Some Sampo shares have been sold in a bid to bring in profits,” said Haavisto. “It doesn’t make sense to sell everything at once. We ought to sell wisely.”

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editors responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net Christian Wienberg

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