The new owners of London-listed New World Resources (NWR) are struggling to convince the Czech government to help prevent the stricken coalminer from going bankrupt, as tensions rise within the coalition between the Social Democrats and the populist Ano party.
The trio of big bondholders that took over NWR at the end of February has been pressing to meet the government for two months but were only finally given an opportunity on March 31.
The meeting with Social Democrat Industry Minister Jan Mladek together with Andrej Babis, the powerful finance minister and billionaire Ano party leader, made “moderate progress”, in the words of Mladek. But he cautioned that “I’m not sure we can reach agreement” and claimed that the bondholders had asked for an "unlimited guarantee".
The trio of Ashmore Investment Management Limited, Gramercy Funds Management, and M&G Investment Management Limited is seeking state help both to cover the social costs of mine closures and to keep NWR from running out of cash before coal prices recover. They are seeking a binding agreement with the government by the end of April.
Coking coal prices have halved since 2011, making several of NWR’s mines uneconomic and pushing it into a negative ebitda of €4mn in 2015. The company had negative operating cash flow of €7mn last year and, with debt payments, is expected to burn through its remaining €86mn of cash during the third quarter of this year.
According to the bondholders, if NWR, which employs 13,000 workers, became insolvent it would cost cost the country more than twice as much than if the government stepped in.
Relations between the company and the government have improved somewhat since Zdenek Bakala, the controversial Czech tycoon, relinquished his shares in February, giving the bondholders control of around 60% of the share capital and two thirds of its €298mn in net debt. In return the bondholders waived the convenants on their debt until the end of July.
However, a longrunning tussle between Babis and Mladek over the crisis, together with a ratcheting up of tension within the coalition over the finance minister’s private business dealings, have prevented the government from reaching a clear stance.
The Social Democrats want to save jobs in the mining region of North Moravia, one of their heartlands, but Babis, together with his media empire, has been more interested in using the crisis to attack the party for allowing Bakala to take over the mines during their previous period in government.
Both parties fear being blamed for the company's collapse but also want to avoid being accused of wasting more state money. “For us the key problem is the legitimacy of spending the money,” Mladek told bne IntelliNews in an interview.
At the meeting on March 31 NWR asked the government to recommit to covering some Kc600mn of social costs for the closure of Paskov mine. This funding would be in the form of a loan that can later be converted into NWR shares. The timetable for the closure will be announced in the next few days but it is expected to be in the first quarter of 2017.
The state will also be asked to help with the social costs of three future closures, likely to take place in 2018. Just closing the Paskov and Darkov mines is estimated to cost up to €100mn, money NWR does not have.
The key sticking point is likely to be over ongoing state help to cover NWR’s cash crisis and to delay the further closures until 2018, just after the general election.
According to Mladek, the Ad Hoc Group of bondholders offered to inject an extra €35mn into the group and write off a further €470mn of gross debt. But in return they proposed that the government help fund NWR until they can recoup some €115mn of their loans.
“They are asking us to provide an unlimited guarantee,” Mladek said, warning that such a commitment of state aid to stop the company running out of cash “might be [needed for] a very long time”.
A spokesperson for the bondholders said Mladek’s figures were “completely misleading” and “taken out of context”.
“All we want is to get clarity on Paskov and a commitment to discuss a solution in the course of April,” she said.
Babis will present the proposals together with Mladek to the Social Democrat-led cabinet on April 7.
Mladek said one option would be for the bondholders to agree to leave the company. The group’s assets could then be taken over by a state-owned entity such as uranium miner Diamo. “We are ready to use Diamo,” he said. “We are definitely able to handle it without them.”
He admitted that the main card the bondholders had was the threat of a disorganised bankruptcy that could damage the government ahead of the general elections. “They can only threaten chaotic closure in bankruptcy,” he said.