idem come sopra
New World Resources’ Disposal of Its Coke Business Is Credit Positive
Last Friday, New World Resources N.V. (NWR, Caa1 stable), the Czech Republic’s largest hard-coal
mining group, announced it had agreed to dispose of its coke activity to METALIMEX Group (unrated), a
Czech commodity trading business, for €95 million. This disposal is credit positive for NWR because the
proceeds will provide it with additional liquidity at a time when coal prices are depressed and the group’s
cash burn rate is high.
The transaction follows NWR’s announcement in May that it would dispose of its coke activity along with
a range of other cash-saving initiatives, including the sale of coal inventories and a reduction in salaries. The
€95 million disposal price is healthy considering the division’s recent performance and weak market
conditions. NWR’s coke activity generated €12 million of EBITDA in 2012, compared with €7 million in
2011 and €31 million in 2010. Since mid-2011, NWR has struggled with weak demand and prices for
coking coal and coke amid weak macroeconomic conditions and declining demand for steel.
Market conditions have continued to deteriorate since late 2012 and NWR’s coking coal businesses has
been particularly affected: its coal divisions (including thermal coal, but excluding its coke activities)
reported an EBITDA loss of €44 million for first half of 2013. Moreover, during the same period, the
group consumed around €91.3 million of cash owing to its high operating costs.
Group cash balance at the end of June was €176 million. Although we expect improved cash generation in
the second half of this year, NWR’s cash balances could erode quickly if market conditions deteriorate
further. In addition, the company faces having to repay the current outstanding amount under its Export
Credit Agencies loan facility (€69 million outstanding as of June 2013) because at the end of December it is
likely to fail to meet the financial covenants it renegotiated in April. Successfully disposing of its coke
activity would likely improve NWR’s ability to negotiate with its key banks.
Proceeds from the coke business disposal, which also include around €25 million worth of coke inventories,
will immediately improve the company’s liquidity. NWR expects to receive €88 million by the 13
December deadline to complete the transaction. The remainder will be in an escrow account and released
after three months, subject to satisfaction of any claim under the sale and purchase agreement.
The disposal is also subject to NWR obtaining approvals from its shareholder, relevant competition and
regulatory authorities and some of its lenders. Although NWR’s coke division is Europe’s largest foundry
coke producer, we do not expect significant hurdles to completing the disposal, given METALIMEX’s
modest exposure to this activity. Furthermore, because NWR’s coke division has always been a separate
entity within the group, separating it from the rest of NWR should be relatively straightforward.
In addition to the disposal proceeds, the company generated €60 million in cash savings during the first half
of the year and expects another €40 million in savings in the second half. These savings should partially
offset NWR’s weak cash flow generation from the operating activity that we expect to remain depressed for
at least another six to 12 months.
