Bondholders declare Czech miner NWR in breach of debt covenants

Bondholders declare Czech miner NWR in breach of debt covenants
NWR's bondholders have refused to extend the covenant waiver further and have declared the group in default of its debt obligations.
By Robert Anderson in Prague April 25, 2016

Bondholders and majority owners of London-listed New World Resources (NWR) declared the Czech coalminer in breach of its debt convenants on April 25, as talks with the Czech government on rescuing the group appeared to be going nowhere. The creditors threatened to declare the group insolvent unless there is progress in the talks by the end of this week.

The Ad Hoc Group (AHG) of bondholders – Ashmore Investment Management Limited, Gramercy Funds Management, and M&G Investment Management Limited – which controls two thirds of the bonds in the miner and 60% of the voting shares, has been trying to pressure the Czech government to help rescue the company.  

Several of NWR's mines are not viable because of low coal prices, pushing the group into operating losses and leaving it struggling to service heavy debts racked up by controversial financier Zdenek Bakala, who handed his shares over to the bondholders in February.

AHG had suspended covenants on the group’s debt until the end of July, on condition the government made a preliminary agreement to rescue the company. However, deadlines of April 15, and now April 22, to reach that deal have now passed. No direct meetings have been held since April 12. The bondholders have now refused to extend the covenant waiver further and have declared the group in default of its debt obligations.

"Given the current status of discussions, it is unclear whether agreement on a restructuring plan can be reached before [operating company] OKD has exhausted all available sources of financing and thus, whether OKD may be obliged to commence insolvency proceedings," NWR said in a statement. 

AHG says insolvency would cost the state €1.2bn, double the cost of a government rescue.

“The investors offered the government ownership of OKD free of all bondholder debts and claims for under €150mn, which represents a further debt write-down of over €400mn [€420mn] for bondholders (in addition to more than €200mn written off by bondholders in 2014),” the Ad Hoc Group said in a statement. “There has been no response from the government.”

A source close to the bondholders said: “It has been basically a month and there has been very little progress. When will this be a priority? They are not even saying ‘No’.”

The government has questioned the figures the bondholders are publicising, arguing that it is being asked to provide an injection closer to €200mn, plus a state guarantee that could reach CZK19bn for keeping the company afloat until coal prices recover. In return the bondholders are offering a virtually worthless stake, while only putting in €35mn themselves.

Industry Minister Jan Mladek told bne IntelliNews on April 22 that the government would not respond to the bondholders' “false deadlines” and “threats”. He said the government was looking at buying the company’s coal reserves and the cabinet would discuss the issue on April 27.

“It is something we are really considering,” he said but added, “I am not sure the government will be enthusiastic about it”. If the government went ahead, he said, it would need to ensure that any funds committed would be used for winding down some of the mines to be closed and making redundancy payments.

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