New World Resources Plc bonds and shares tumbled the most ever on speculation the unprofitable Czech coal miner will reorganize its debt and sell new stock.
The company’s 275 million euros ($375 million) of unsecured notes due in January 2021 slumped 20 cents on the euro to 14.88 cents, lifting the yield to record 61 percent. Its 500 million euros of secured debt due May 2018 fell 9.5 cents to 60.96 cents, according to data compiled by Bloomberg.
NWR hired Blackstone Group LP to advise on a business overhaul to shore up its finances as it can no longer withstand a drop in coal prices, the Amsterdam-registered miner said late yesterday. The company said it hasn’t got an extension of an undrawn 100 million-euro credit line which expires on Feb. 7.
“The likely outcome, in our view, will be a debt-for-equity swap or a haircut for bondholders, followed by a capital increase,” Bram Buring, an analyst at Prague-based Wood & Co. brokerage, wrote in report to clients today. “The market may interpret this announcement as a prelude to a default.”
Wood has a sell recommendation on NWR shares with a price target of 11 koruna, according to the report. The stock fell a record 26 percent to 18.50 koruna by close in Prague, with traded volume at 16 times the three-month daily average.
NWR has been hurt by shrinking demand from steelmakers and a global glut of coal used to make electricity. The average negotiated price of coking coal, used in steelmaking, dropped 7 percent in the first quarter from the previous three-month period, the company said. It expects to significantly curb its “economically mineable” reserves, according to the statement. NWR also said it hired White & Case LLP as its legal adviser.
“NWR can’t risk any further deterioration of the market,” Chief Financial Officer Marek Jelinek said on a conference call yesterday. “Our balance sheet needs to reflect our cash generation potential in the current market.”
Majority shareholder BXR Group Ltd., controlled by Czech billionaire Zdenek Bakala, is prepared to invest new equity capital into a “revised and satisfactory capital structure,” NWR said. The company said it “will consider all available options” during the review of its balance sheet.
Komercni Banka AS, Societe Generale SA’s Prague-based unit, cut NWR shares to sell from hold today in a report from analyst Josef Nemy. The miner is “very likely” to issue new shares at a “significant discount” to the market price, he said.
A 20 percent writedown on NWR’s debt would require selling about 270 million new shares to close the funding gap, according to calculations by Wood. A 50 percent writedown would reduce the size of the needed rights issue to about 60 million shares, Buring said in the report.
“The timing of a possible debt restructuring and capital increase is surprising, inasmuch as the company has stabilized its cost base and cash position in recent months,” he wrote. “It confirms our view that the majority shareholder is unwilling to support the company without other stakeholders taking a haircut as well.”