NWR Bonds at 15 Cents Signal Growing Dismay With Miner

Investors in New World Resources Plc are showing increasing skepticism the money-losing Czech mining company will be able to restructure its debt.

NWR’s 275 million euros ($374 million) of unsecured bonds maturing in January 2021 traded at 15 cents on the euro today, a week after the company threatened to liquidate if bondholders didn’t accept a 75 percent loss on the securities. Owners of the notes have lost 51 percent this year, the second-biggest decline among 446 euro-denominated corporate bonds tracked by Bloomberg.

Zdenek Bakala, the majority owner of NWR, is struggling to win support for an overhaul that would cut the company’s debt by 45 percent and increase the number of shares 25 times. After six quarters of losses spurred by plunging coal prices, the only other option is selling almost all of NWR’s assets, which could leave some investors with nothing, the miner said on July 2.

“This restructuring may solve the issue of excessive debt, but I don’t see a bright future for NWR,” Lutz Roehmeyer, a money manager at LBB Invest, who doesn’t hold any bonds from the Czech company and owned its shares until January, said by phone from Berlin on July 7. “Plus the deal could go sour and the recovery value then would be even lower.”

The company’s first-quarter loss narrowed to 27 million euros as it compensated for falling commodity prices by cutting operational costs. That compared with a record loss of 465 million euros in the final three months of last year after NWR wrote down the value of its assets.

Share Sale

NWR’s restructuring plan calls for raising 150 million euros from a share sale, with the new equity representing 96 percent of the total after the transaction and current shares outstanding equating to 4 percent, according to the company statement on July 2. In addition to losses on unsecured debt, owners of secured bonds due May 2018 will book a 25 percent reduction in the value of their holdings, it said.

Without the approval, the miner will sell its units OKD AS in the Czech Republic and NWR Karbonia SA in Poland, leaving some investors with “minimal or no recoveries,” NWR said, naming PricewaterhouseCoopers LLP as a prospective insolvency administrator for the company.

“Our discussions and negotiations with bondholders and other stakeholders are progressing and there is nothing that we can add to the announcement that we made on July 2,” Joe Cook, a spokesman for NWR, said by e-mail yesterday.

NWR shares have tumbled 57 percent since July 2 to 3.90 koruna today by 2:41 p.m. in Prague, valuing the company at 1.1 billion koruna ($52 million). That compares with a debt load of 825 million euros, according to the company.

‘Lost Confidence’

Bakala, whose net worth is estimated at about $960 million by Forbes, gained control of OKD in 2004 before founding NWR, which sold shares in an initial public offering in May 2008. The stock price peaked at 620 koruna in June that year.

LBB Invest bought NWR shares in the IPO and sold them in January, the month when the mining company hired Blackstone Group LP for a review of its capital structure, according to Roehmeyer, who oversees $1.1 billion of assets.

“I didn’t want to get watered down if a lot of new shares come to the market,” he said. “At the same time I completely lost confidence in the management.”

The government forced NWR in April to keep its Paskov mine in the eastern Czech Republic open until 2017 instead of closing it this year. The shaft employs about 3,000 people and accounts for about $80 million in losses a year, according to NWR.

‘Buying Time’

The benchmark spot price for coking coal delivered to China has tumbled 17 percent this year to $111 a metric ton, after a 16 percent decline in 2013, data compiled by Bloomberg show.

The price will have to increase to about $170 per ton for NWR to stop losing money, according to Bohumil Trampota, an equity analyst at J&T Banka AS in Prague. Without the deal, the company would probably struggle to find a buyer for the assets, he said by phone on July 8.

“NWR is only buying time,” Trampota said. “If they restructure but the coal price doesn’t significantly increase, then in two years we’re in the same situation as today.”

The Czech government aims to protect 14,000 jobs at OKD in the next 10 years and it would consider buying the unit from NWR if the restructuring plan fails and no “strategic investor” can be found, Czech Industry and Trade Minister Jan Mladek said in an e-mailed statement two days ago.

The rate on NWR’s unsecured 2021 bonds fell 10 basis points today after reaching a record 62.65 percent yesterday. The yield on the May 2018 secured notes has fallen 60 basis points since July 2 to 20.18 percent.

“It’s over for bondholders,” said Peter Elek, a Budapest-based portfolio manager at Dialog Befektetesi Alapkezelo Zrt., which has sold out of NWR’s senior secured notes. “I have lost faith in the management.”

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