Energa Tumbles as Coal Mines Buy Risks Jeopardizing Dividend

  • Polish utility to invest $155 million in state coal producer
  • Investment `risks' trimming dividend payouts, analysts say

Energa SA sank the most on record after Poland’s third-largest power utility made an initial bid to purchase a stake in a coal producer to be created from unprofitable state-held mining assets, potentially reducing its ability to pay hefty dividends.

The shares plummeted 10 percent, the most ever, to 11.97 zloty at 11 a.m. in Warsaw, making it the biggest decliner on the Warsaw’s WIG20 Index. The state-controlled utility pledged to invest as much as 600 million zloty ($155 million) in Polska Grupa Gornicza Sp. z o. o., it said in a statement after the market closed on Tuesday. PGE SA and PGNiG SA, also state-run utilities, offered to buy stakes in the coal group at 500 million zloty and 400 million zloty respectively.

While Poland relies on coal for about 90 percent of its electricity generation, shrinking prices for the fuel have driven the industry into a 1.9 billion-zloty loss last year. The cabinet of Beata Szydlo won last year’s ballot after promising not to close any mines and keep the country dependent on coal for decades to come. All potential investors want assurances the mining company will be profitable and won’t ask them for more capital in the next 10 years.

“We see a tangible risk of the dividend payouts going down in upcoming years,” Robert Maj, an analyst at Haitong Bank SA, said in a note. “Free cash flow generation growth has limited capacity and as such the company would need to prioritize its goals” and “we would not expect the minorities’ needs to be placed higher” than the government projects.

‘Hardest Hit’

Energa has become less appealing for investors as the current government encouraged the management it shuffled after October’s elections to reconsider building Ostroleka coal-fired power plant, deemed necessary by the state to guarantee the country’s energy security. The company, which last year paid out a dividend of 596.3 million zloty, is also interested in Polish heat and power assets put up for sale by Electricite de France SA, it said on Tuesday. The stock lost 45 percent last year, more than twice as much as WIG20 gauge in the period.

While there is still a “risk” of potential further costs to the coal bailout plan, Energa’s participation is “a surprise” as the company has the lowest coal consumption in the Polish sector, according to Lukasz Jakubowski, an analyst at Pekao Investment Banking SA in Warsaw. Energa’s shareholders “might be hit the hardest,” he said in a note, estimating that the investment accounts for 11 percent of its market capitalization, compared to 2.1 percent for PGE and 1.4 percent for PGNiG.

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