PGNiG to Gain $930 Million on Gazprom Deal; Shares Rally

Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s biggest gas distributor, expects its profit to jump by as much as 3 billion zloty ($930 million) this year after OAO Gazprom (GAZP) agreed to cut the price of the fuel it supplies. Its shares rallied the most on record.

Earnings before interest, taxes, depreciation and amortization will increase at least 2.5 billion zloty after the Russian supplier agreed to take market prices for natural gas into account while pricing sales to PGNiG, the Polish company said in a regulatory statement today. The profit gain is based on the retroactive settlement for 2011 and 2012, PGNiG said. The mean estimate in a Bloomberg survey of nine analysts was for its 2012 Ebitda (PGN) at 3.37 billion zloty before the agreement.

“It’s very positive information, but there’s a question about regulatory tariffs going forward,” Maciej Hebda, an analyst at Espirito Santo Investment Bank, said by phone. “If the agreement is introduced now it will mean the company won’t show losses on gas sales in the fourth quarter.”

Gazprom’s European customers, including EON (EOAN) AG and Eni SpA (ENI), have sought to review contracts with the Russian exporter after being forced to buy gas at prices linked to oil and selling at lower spot-market or regulated rates. PGNiG, which has a 98 percent market share in Poland, buys about two-thirds of its 14.4 billion cubic meters of gas a year from Gazprom.

The annual cost of gas imports from Russia will fall by 3 billion zloty from about 15 billion zloty, Treasury Minister Mikolaj Budzanowski said on TVN CNBC today. The state-controlled company will ask the Polish regulator to allow it to reduce its own prices from the start of next year, PGNiG Chief Executive Officer Grazyna Piotrowska-Oliwa said at a news conference in Warsaw today.

Shares Soar

PGNiG shares soared by as much as 15 percent, the strongest one-day gain since the stock started trading in 2005. The shares were 10 percent higher at 4.35 zloty at 3:24 p.m. in Warsaw, valuing the company at 25.7 billion zloty. Yields on its 2017 Eurobonds declined 2 basis points to 3.01 percent today, the lowest since Sept. 14.

The deal also boosted shares of Polish chemical producers that are among PGNiG’s biggest customers. Azoty Tarnow rose as much as 2.5 percent, Zaklady Azotowe Pulawy SA (ZAP) increased 2.6 percent, while Zaklady Chemiczne Police SA (PCE) soared 5.7 percent.

PGNiG’s net loss widened to 314 million zloty in the second quarter from 20 million zloty a year earlier as its loss before interest and taxes at its gas trading unit widened to 658 million zloty, the company said on Aug. 23. Its gas sales business will have Ebit “at about zero” after the price deal, Deputy Chief Executive Officer Radoslaw Dudzinski said today.

Rating Cut

The weakening profitability prompted Standard & Poor’s to cut the company’s rating to BBB from BBB+ in September. S&P will “analyze” the impact of the new contract on PGNiG’s ratings, Tuomas Erik Ekholm, an analyst, said in an e-mailed reply to questions from Bloomberg.

Joanna Fic, an analyst at Moody’s Investors Service, which placed PGNiG’s rating on review for downgrade on Sept. 4, wasn’t immediately available for comment when contacted by phone and e- mail today.

The former Polish gas monopoly sued Gazprom in February, demanding lower prices in the long-term contract between the two countries which was higher than in parts of western Europe further away.

Under the previous deal Poland paid Gazprom about $570 per 1,000 cubic meters and the price will drop “significantly” below $500, reaching “European” levels, Budzanowski said. The state-controlled company withdrew an arbitration case against Gazprom as part of the deal, Piotrowska-Oliwa said.

Earlier this year, Gazprom agreed to cut prices in similar contracts with its European customers, including France’s GDF Suez (GSZ) SA and Germany’s EON. While details of the EON agreement aren’t known, Gazprom has revised most of its disputed contracts by applying a price discount of 7 percent to 10 percent.

In September, the European Commission, an executive arm of the European Union, started an investigation whether Gazprom imposed unfair prices by linking natural gas and oil prices, prevented gas from being traded between countries and hindered the diversification of supply.

To contact the reporter on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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