Coal news and updates

Poland’s plan to rescue the European Union’s biggest coal producer with the help of its state-run utilities risks boosting borrowing costs for the power companies.

 

Enea SA, the nation’s fourth-biggest electricity generator, will meet investors this week for a planned 1 billion zloty ($276 million) sale of notes, three people familiar with the offering said on Jan. 9. The proposed government bailout of Kompania Weglowa SA means the utility’s cost of debt will be about 4 percent higher than what the company targeted in November, according to Allianz SE.

 

“The market will definitely start to price in the impact of the coal industry overhaul during Enea’s bond offering,” Marek Kuczalski, deputy head of investments at Allianz’s mutual fund in Poland, which manages 2.7 billion zloty in assets, said by phone on Jan. 9. “The sale is likely to succeed but investors” will probably demand a bigger premium, he said.

 

Polish utilities will make equity investments in Kompania following a restructuring that includes job cuts and the closure of mines, according to an Economy Ministry “rescue plan” published last week. The country, which relies on coal for 90 percent of its power, is seeking to keep the industry afloat to avoid increasing its dependence on energy imports from Russia.

 

Underground Protests

 

Prime Minister Ewa Kopacz will meet coal-industry unions today after miners halted talks with government representatives, according to her Twitter account. More than 1,000 Kompania workers have been protesting against job cuts by remaining underground in mines after their shifts end.

 

Enea plans to sell five-year securities after meeting potential buyers from Jan. 13 to Jan. 15, according to the people, who asked not to be identified because the information is private. Slawomir Krenczyk, a spokesman for Enea, declined to comment when contacted by phone on Jan. 9.

 

The utility sought a spread of around 90 basis points over the six-month Warsaw interbank offered rate, Chief Financial Officer Dalida Gepfert said Nov. 12. Now, the utility may have to offer at least 100 basis points, Allianz’s Kuczalski said.

 

The government wants to “gradually” phase out operations at four of Kompania’s 14 mines, sell one to coal trader Weglokoks SA and move the remaining profitable facilities to a new holding company. Power producers and Weglokoks are already in talks to buy stakes in the new group. Poland estimates that as many 4,800 jobs may be made redundant under the plan, which will cost the budget 2.3 billion zloty through 2016.

 

Final Details

 

Enea’s debt sale looks set to benefit from demand by local pension funds, Allianz’s Kuczalski said. With 9.2 billion zloty in bank deposits on Nov. 30, these investors are seeking to balance their predominantly equity-focused portfolios with less-volatile corporate bonds, he said.

 

Zloty-denominated bonds of utilities PGE SA, Tauron Polska Energia SA and Energa SA were little changed last week, according to secondary-market data from Bank Pekao SA. The yield on 500 million euros ($590 million) of PGE notes due in 2019 dropped one basis point last week to a record 1.07 percent on Jan. 9 and rose 1 basis point to 1.08 percent at 1:10 p.m. in Warsaw. Enea shares gained 4.8 percent last week and fell 1.4 percent to 16.47 zloty today.

 

“We haven’t seen much of a bond reaction because the market needs more details about the final shape of the revamp,” Krzysztof Zawila, the chief investment officer at Assicurazioni Generali SpA’s Warsaw-based fund, with $2.1 billion of assets, said by phone on Jan. 9. “There are more and more question marks, so investors are waiting.”

 

Investors’ Questions

 

The government is also working on a plan to consolidate PGE, Tauron, Energa and Enea to help the utilities compete in Europe, Treasury Minister Wlodzimierz Karpinski said last week.

 

“A still undefined role in the coal rescue and potential mergers won’t help Enea’s offering, as they raise uncertainty and change risk perception,” Mikolaj Stepniewski, who helps oversee the equivalent of about $120 million for Investors TFI SA, said by phone on Jan. 9. “Even though these will be the main questions at investor meetings, the sale should be a success as state-controlled utilities are perceived as safe.”

 

 

Source: Bloomberg