Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Govt won't let Solid Energy fail, eyes banks to share risk

Govt won't let Solid Energy fail, looks to banks to wear their share

By Pattrick Smellie

Feb. 21 (BusinessDesk) - Solid Energy will remain trading during a "difficult two or three months" while the company, its bankers and the government find a way to keep a smaller, coal-only business alive.

At a press conference in the Beehive, Finance Minister Bill English said the government was not injecting any funds into Solid Energy at present and had offered no formal government guarantee, but also that "we will not let it go into receivership."

English said Solid Energy would continue to be able to pay suppliers and workers' wages while its problems were carefully considered and a solution devised.

"We're committed to getting it to the stage where it's a viable, ongoing business," said English of a company that employs some 1,200 staff and was at one time on the list of SOEs to be partially privatised.

That formulation suggests the state-owned coal company, which put its own value at $3.5 billion in 2011, is only able to access bank finance because of an implicit government guarantee.

English also made it clear that while the government will be under pressure to put capital into Solid Energy to keep it afloat, he expects the company's bankers to share the pain, having backed it with loan finance to date.

"Who contributes to its (Solid Energy's) recovery is a matter that will be discussed over the next month or so between the company, banks and the Treasury."

The government's "best advice" was that a core coal-based business was capable of being created from the current set of assets. The government could manage a capital injection if it had to.

"It looks like another government bailout," said Grant Williamson, a director at brokerage Hamilton Hindin Greene. "It is pretty disappointing and shows another reason why these companies should be on the listed market and better scrutinised."

English said Solid Energy's overly optimistic view of its potential first became apparent during a scoping study ahead of its possible part privatisation, which identified a gap of nearly $2 billion between what the company thought it was worth and an independent valuation.

Solid Energy has been racking up debts at the rate of around $10 million a month since last June, when the company reported it was carrying $300 million of debt, which now stands at $389 million. That rate of debt growth triggered alarm among the company's syndicate of bankers, who have been in discussions with Solid and the government's economic advisers at the Treasury.

It had already announced huge write-downs on assets at its last annual profit result, most of the former board has either retired or been replaced, and its chief executive of the last decade, Don Elder, resigned earlier this month.

Elder was on a package paying more than $1 million, although he refused bonus elements last year and was given a 40 percent performance score by the board for the 2011/12 year.

The company's difficulties stem from a failure to appreciate how vulnerable it was to a drop in the international price of coal, said English. That was a major driver for last year's $40.2 million loss, the mothballing of the Spring Creek underground mine on the West Coast and a halt to expansion of the Huntly East coal mine in the Waikato.

Coal prices peaked in January 2011 at US$350 a tonne, but fell to a low of US$140 per tonne in September last year in response to a sharp slowdown in steel demand from China, in particular. They had recovered modestly since, but the company was carrying substantial debt and any further recovery would be prolonged, Ford said in a statement.

The half-year result, due in two to three weeks, would record "a significant loss," he said.

Further downsizing now appears inevitable. The company has reportedly been trying to sell farmland it had bought to allow lignite developments. It is also putting the finishing touches to a $29 million demonstration briquette manufacturing plant in Mataura, which may now never open, amid reports that prospective customers Fonterra and Ravensdown recently withdrew their interest.

At the same time, a number of alternative energy projects, including the development of diesel and fertiliser manufacturing from low-grade Southland lignite coal, were consuming management and board attention, with a blow-out in staff at head office devoted to areas other than Solid's traditional coal extraction business.

English and Ryall refused to be drawn on the question of the quality of the board and management who created the current problem, saying questions about Elder's performance and pay packet should be referred to the board, now chaired by Auckland businessman Mark Ford.

"At some stage, there will be an opportunity to make judgements about that," said English.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

ICT Innovation: Six NZ Finalists In World Summit Awards

The awards are a global showcase of 40 projects, across eight categories, with a special emphasis on those which show the benefits of information and communication technology for the development of communities. New Zealand has finalists in six of the eight categories. More>>

ALSO:

Final Frontier: Rocket Lab And NASA Sign Commercial Space Launch Agreement

Rocket Lab has signed a Commercial Space Launch Act Agreement with the National Aeronautics and Space Administration (NASA). The agreement enables Rocket Lab to use NASA resources - including personnel, facilities and equipment - for launch and reentry efforts. More>>

ALSO:

Scoop Business: Wheeler Downplays Scope For ‘Large’ Rates Fall

Reserve Bank governor Graeme Wheeler says some market commentators are predicting further declines in interest rates that would only make sense for an economy in recession, although some easing is likely to be needed to maintain New Zealand’s economic growth. More>>

ALSO:

Ruataniwha Dam: Consent Conditions Could Mean Reduced Intensity

Legal advice sought by the Hawke’s Bay Regional Council on the Ruataniwha Dam consent conditions has confirmed that farmers who sign up to take water from the dam could be required to reduce the intensity of their farming operation to meet the catchment’s strict nitrogen limit. More>>

Health And Safety: Bill Now Sees Rules Relaxed For Small Businesses

Health and safety law reform sparked by the Pike River coalmine disaster has been reported back from the industrial relations select committee with weakened requirements on small businesses to appoint health and safety representatives and committees. More>>

ALSO:

Bearing Fruit: Annual Fruit Exports Hit $2 Billion For First Time

The value of fruit exported rose 20 percent (up $330 million) for the June 2015 year when compared with the year ended June 2014. Both higher prices and a greater quantity of exports (up 9.0 percent) contributed to the overall rise. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news