JSW Slumps to Record After Shelving Debut Eurobond Plan

Jastrzebska Spolka Weglowa SA, the European Union’s biggest coking coal producer, dropped plans to sell debut Eurobonds, sending its shares to a record low.

The company, known as JSW, decided “not to carry out the transaction at this time because of market conditions,” it said in a statement today. Its stock fell as much as 10 percent to the lowest level since it started trading in Warsaw in July 2011. The shares were 5 percent lower at 27.51 zloty at 3:10 p.m. in Warsaw, extending this year’s decline to 48 percent and valuing the coal producer at 3.2 billion zloty ($947 million).

State-controlled JSW met with U.K. and U.S. investors last month about its plans to sell foreign-currency debt to finance investments and boost liquidity. The company is heading toward its first annual loss in five years after the price of coking coal, used in the production of steel, fell to a six-year low.

“The company will have to look for another source of financing. This may be a share sale,” Hubert Kmiecik, who helps manage the equivalent of $800 million at Warsaw-based mutual fund TFI Allianz Polska SA, said by e-mail today. “At today’s coking coal prices, JSW is burning cash and without external financing it will find it hard to function.”

Financing Needs

JSW has no plan to sell new shares and will return to the Eurobond market “in spring,” Chief Executive Officer Jaroslaw Zagorowski said in an interview in Warsaw.

“The company has other ways of balancing costs and revenue” as well as access to banking credit lines, he said. “We don’t have our back to the wall.”

The group needs cash for investments, including on a mine bought from state-owned competitor Kompania Weglowa SA this year. Kompania, the EU’s biggest thermal coal producer, is meeting with investors this week before its own bond sale. Tomasz Zieba, Kompania’s spokesman, declined to comment by phone when asked how JSW’s decision could affect Kompania’s debt sale plans.

The situation of JSW as well as other coal producers is “of particular interest to the government,’ the Economy Ministry said in an e-mailed statement, adding that key decisions are made by the company’s management.

Communist-Era

JSW may post a 588.3 million-zloty loss in 2014, its first annual since 2009, after the benchmark price of coal used by steelmakers fell to $119 a ton, the lowest level since 2008, according to the mean estimate in a Bloomberg survey of 12 analysts. Its first-half loss stood at 343.2 million zloty and its free cash flow was minus 637.2 million zloty.

The company plans to scale down communist-era benefits for employees, canceling free coal for retired employees or suspending a second annual bonus, a move that could save it 278 million zloty, Zagorowski said in an interview today.

JPMorgan Chase & Co., Credit Suisse Group AG, ING Groep NV and PKO Bank Polski SA helped manage JSW’s bond offering. The company had sought to sell at least $500 million of notes, a person familiar with the plans said on Aug. 21.

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