Once Largest Prague IPO, Miner NWR Sees Break Up Prospectsby
NWR expects to be wound up or broken up after OKD insolvency
Owners failed to reach deal with government on saving company
New World Resources Plc, which entered the Prague Stock Exchange eight years ago as the largest Czech equity offering ever, may become the country’s biggest corporate failure in at least a decade.
The mining company, controlled by a group of investors including Ashmore Investment Management Ltd., said on Wednesday it will probably be “wound up or broken up in an orderly manner” as a result of an insolvency filing by its key asset, OKD AS. The unit said a day earlier it had enough cash to pay May wages but couldn’t meet any obligations to over 650 creditors, including NWR, as its debt was more than twice the value of its assets.
“It’s game over for NWR,” said Josef Nemy, a Komercni Banka AS analyst who
has had a sell recommendation on the stock for more than two years and in December predicted the company’s collapse within six months.“The biggest shareholders and creditors will now try to recover at least some of the bond principal since the shares are probably worthless.”
NWR is the latest victim of global overcapacity, a slowing Chinese economy, tighter environmental regulation and lower natural gas prices that have made coal mining unprofitable in many places. The government is trying to preserve part of OKD’s operations and save at least some its 13,000 jobs in one of the poorest Czech regions. It had rejected an offer to buy the troubled miner from the so-called Ad Hoc Group of owners.
NWR stock was suspended on the London Stock Exchange on Wednesday and the Prague bourse will do the same from Thursday. The company also requested suspension on the Warsaw Stock Exchange. Winding up or breaking up its business as a result of OKD’s insolvency would mean “very minimal or no returns” to NWR shareholders, according to a regulatory statement.
NWR shares have fallen 42 percent in the past two days to 0.07 koruna as of 1:29 p.m. in Prague. The stock price peaked at 620 koruna in June 2008, weeks after the last Czech producer of hard coal and its owners raised $2.5 billion in an initial public offering and in London, Prague, and Warsaw.
The miner restructured its debt in 2014 and received a cash injection from its stakeholders including the founder Zdenek Bakala. Bakala, whose biography includes a job at Drexel Burnham Lambert investment bank in New York, gained control of OKD in 2004 before founding Amsterdam-registered NWR. Its IPO made him one of the richest Czechs, with net worth estimated at about $900 million by Forbes.
He departed the company earlier this year and left it in the hands of the former bondholders, who have failed to reach an agreement with the government on saving the unprofitable mining business.
OKD is the largest Czech company by revenue to file for insolvency since new legislation took effect in 2006, according to the Prague-based arm of research and debt-collection provider Creditreform.
While OKD’s assets totaled 6.7 billion koruna ($285 million), its debt stood at 17.2 billion koruna, including 1.75 billion koruna owed to NWR and a guarantee of NWR’s 300 million euros of bonds due in April 2020, according to its insolvency petition published on the court’s website. Other major creditors include the Czech units of Erste Group Bank AG and KBC Groep NV.
The Ad Hoc Group had offered to write off 420 million of debt, inject some cash and sell the OKD to the state for 150 million euros ($172 million). The owners also commissioned a study that said the social impact of an “uncontrolled” bankruptcy would be 33 billion koruna, while an orderly phasing out of operations could limit the cost to 17 billion koruna. Industry and Trade Minister Jan Mladek called the group’s tactics an “unacceptable pressure” on the government.
The cabinet is now waiting for the court to name an insolvency administrator before it takes further measures, Prime Minister Bohuslav Sobotka said on Wednesday. OKD needs to secure “enough money to pay salaries for its workers,” Sobotka told the state television. “At the same time, it’s important to preserve OKD’s mining operations,” he said.