Polish utilities punished on WSE as they're finally pulled into coal rescue

Polish utilities punished on WSE as they're finally pulled into coal rescue
Polish utilities have been struggling to stay out of the mines and above ground for months
By bne IntelliNews March 16, 2016

The share price of Polish state-controlled utility Energa tumbled on the Warsaw Stock Exchange on March 16, while gas company PGNiG was also hit following announcements late the previous day that they will take part in the government-led rescue.

The pair, alongside PGE - Poland's largest power company - said on March 15 that they will invest in PGG, a new vehicle that will replace Kompania Weglowa, the ailing state holding for the majority of the country's hard coal mines. Beset by weak markets and inefficiency, the industry needs an estimated PLN2.2bn (€510mn) in cash.

Warsaw has said it expects state-controlled companies to contribute PLN1.5bn. The listed firms have been resisting the pressure to get involved - which has come from both the current government and its predecessor - for months. That has seen stock prices buckle over the past 12 months: Energa has shed 47%; PGE 30%.

However, the PiS administration has overseen a complete change of management at the companies. Energa pledged in a market filing on March 15 that it will provide PLN600mn. PGE will put another PLN500mn on the table, and PGNiG PLN400mn.

Investors were unimpressed for the most part. Energa stock kicked off March 16 with a 10% drop on the Warsaw Stock Exchange, as analysts pointed to the company’s relatively small demand for coal. Investors have also been spooked by the likely sharp rise in company debt and drop in dividend due to the deal.

PGNiG’s exposure to coal is also small. However, heat and power subsidiary PGNiG Termika does depend on the fuel. While that appeared to limit losses to 0.6% on the morning of March 16, it does not justify putting PLN400mn into PGG, claim analysts at Erste.

"This is negative news to PGNiG as the coal sector suffers in the country. The PLN 400mn is [about] 8%- 10% of this year's EBITDA.  Last year the cumulative loss of the [mining] sector was PLN1.9bn – the outlook is still bleak with low coal prices and inefficient domestic sector,“ the bank writes.

Only PGE escaped unscathed on the WSE. That's likely because PGE is a much larger coal consumer than the other two companies, and its investment will reap some reward. PGE’s coal-fired power generation capacity is roughly five times bigger than Energa’s. The company's stock had gained just above 1% at the beginning of trade on the Warsaw bourse.

A successful rescue for the coal industry  is key for the government, which promised in its successful election campaign in October that it would help the sector without the loss of jobs. Coal is Poland’s staple fuel, and successive governments have failed to push any restructuring past the powerful unions representing an industry employing around 100,000.