Czech Billionaire Agrees to Restructure Debt of Miner NWR

Czech billionaire Zdenek Bakala agreed to restructure the debt of unprofitable coal miner New World Resources Plc, doubling down on a company that, in its heyday, made him one of the country’s richest men.

The junk-rated miner’s secured bonds surged their most ever yesterday after investors including Bakala’s BXR Group pledged to provide 185 million euros ($252 million) of additional capital for new shares. If approved by the required majority of bondholders, the deal will help cut NWR’s debt to 450 million euros from 775 million euros and extend debt maturity to 2020.

The restructuring agreement comes after six consecutive quarters of losses for NWR, which has suffered from a continuous slump in coal prices and pressure from the Czech government to halt a plan to close its money-losing Paskov mine. In April, NWR agreed to keep the coal shaft, which employs 3,000 workers and hits the company with an $80 million loss each year, open until 2017.

“BXR is clearly expecting prices of coal to rise, otherwise they wouldn’t be doing this,” Petr Bartek, an analyst at Erste Group Bank AG in Prague, said by phone. “But let’s not forget that, given today’s coal prices, the company is still cash-flow negative.”

Bakala Criticism

BXR Group, Bakala’s investment company, will inject 75 million euros in exchange for new NWR shares, while a further 50 million euros will be invested by other bondholders. Certain bondholders will also back a 35 million-euro super senior credit facility, the company said.

Bakala gained control over the Czech mining company OKD, the biggest employer in the industrial northeastern Ostrava region, in 2004 and then founded NWR, which sold shares in an initial public offering in May 2008. The stock price peaked later that year and has since plunged 97 percent.

The billionaire drew fire from both the labor unions and the government for a plan to close the Paskov mine, because the Ostrava region, where it is located, has one of the highest unemployment levels in the country. Bakala has also been criticized by Czech politicians for his purchase of apartments in Ostrava, mostly housing miners, and reneging on a promise to sell them at a controlled price to their long-term tenants.

Cost-Saving Plan

As prices of coal continued to slump, NWR announced a cost-saving plan last year and sold its OKK coking plant for 95 million euros. The company also mothballed its Debiensko project in Poland until prices of the commodity recover.

The secured notes due May 2018 remained almost unchanged at 73.3 euro cents today after yesterday’s record jump of 9.4 euro cents. The yield is at a four-month low of 17.6 percent. Shares rose 0.5 percent to 11.20 koruna in Prague today after yesterday’s gain of 6.2 percent.

The NWR restructuring proposal needs approval from 75 percent of bondholders by value and 50 percent of those present and voting for each class of creditors, NWR spokesman Joe Cook said by e-mail yesterday in Prague. The plan is currently supported by the holders of more than 56 percent of the secured debt, 25 percent of the unsecured securities and 64 percent of shares, he said.

“It’s not sure that the proposed transaction will be realized given that the company needs an approval from 75 percent of bondholders in each tranche,” Erste’s Bartek said. “We keep our cautious stance toward NWR.”

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