Quote:
Simon Hartley — 22 February 2013
The beleaguered State-owned enterprise Solid Energy – one of the West Coast's largest employers - has disclosed it is in talks with its banks and Treasury, over its “substantial” debt and the support required to turnaround the flagging operations.
During the past year, Solid Energy's total liabilities have been driven up by increased borrowings, from $614 million to more than $743.5 M, according to its annual report to June, released last November.
The $743.5 M includes cash provisions held, term interest borrowings and accounts payable.
More restructuring appears likely for its remaining 1,500 staff, when Finance Minister Bill English and State Owned Enterprises (SOE) Minister Tony Ryall responded to the shock announcement by Solid Energy chairman Mark Ford yesterday.
English said at a briefing the Government would not let the company go into receivership. He would not directly answer questions about a taxpayer-funded bailout, but would not rule it out.
No mention was made on the question of whether Solid Energy was close to breaching banking covenants.
Ryall said Solid Energy was facing “very serious financial challenges” - its debt stood at $389 M and its interim result “will show additional losses.”
“The Government appreciates this is a very unsettling time for employees and suppliers and the company's wider stakeholders but it is a process which must be worked through carefully and properly,”' the ministers said in a joint statement.
A year ago Solid Energy was on the Government list for SOE floats, but this announcement will kill any chance of that happening in the near future.
English said: “World coal prices have dropped significantly [40%] which has contributed to the deteriorating financial position that Solid Energy is in now.”
Beginning in August last year, Solid Energy flagged the likelihood of a $200 M slump in revenue, followed shortly after by announcing almost 500 redundancies around the country.
Next, in November, its annual profit plunged 146% and it booked a $40 M loss; because of the slumped global coal prices. There was no repeat of the previous year's $30 M dividend.
Barely 20 minutes after Solid Energy's statement yesterday, English and Ryall gave short notice of the 4.30pm media briefing.
Following a global coal price high of $US350/tonne ($NZ419) in January 2011, the price slumped to$US140 by last September, but had since retraced some losses to trade around $US224 in June.
Three weeks ago chief executive of 12 years, Dr Don Elder, resigned, effective immediately, amid criticism of having too many developmental projects underway in recent years.
The lion's share of its more than 4 million tonnes of annual production is from the West Coast, and a relatively new $25 M lignite-to-briquette plant near Mataura, has been unscathed by restructuring, so far.
In an unusual move, Solid Energy chairman Mark Ford yesterday released a statement outlining the company's trading position was continuing to deteriorate, in spite of initiatives to reduce costs, preserve cash and restructure, in the face of low global coal prices.
“We are in discussions with our banks and Treasury on the debt and equity support required for future operations of the business.
“A restructuring and turnaround plan for the company is being prepared by the newly appointed board in support of these discussions,” Ford said.
He warned that Solid Energy was “carrying substantial debt” and the half-year result to be released shortly “will record a significant loss.”
*Simon Hartley is senior business reporter for the Otago Daily Times.
Here's more detail about where the Huntly coal comes from, how it is blended.