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PGNiG May Take Steps to Avoid Breaching Debt Covenants

Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s dominant gas company, may take steps to avoid breaching debt covenants after posting an unexpected loss in the second quarter.

Net debt increased to 7.59 billion zloty ($2.35 billion) at the end of June, while earnings before interest, taxes, depreciation and amortization fell 49 percent to 951 million zloty in the first half. The ratio of net debt to cumulative four-quarter Ebitda rose to 3.2 at the end of June, compared with the 3.5 covenant in PGNiG’s agreement with creditors.

“We are aware of the situation with net debt and Ebitda,” Chief Financial Officer Slawomir Hinc said at a conference call today. The company’s steps may include asking the country’s energy regulator to allow it to increase prices to maintain the debt measure “at the level acceptable by financial institutions.”

The former gas monopoly is Poland’s biggest corporate debt issuer after selling 500 million euros ($627 million) of Eurobonds in February and 2.5 billion zloty of domestic securities in June. PGNiG, which completed a 3 billion-zloty acquisition of Vattenfall AB’s Warsaw heat and power units, plans to spend 27 billion zloty by 2015 to expand storage facilities and increase gas and oil production.

“It seems PGNiG won’t breach debt covenants at the end of this year and I wouldn’t expect bigger problems toward the end of the year,” Maciej Hebda, a Warsaw-based analyst at Espirito Santo Investment SA, said by phone. “Next year I expect Ebitda to rise significantly.”

The company said its Ebitda will rise next year as it starts production from its Polish and Norwegian oil fields.

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