'Precarious' Solid Energy in banks' hands; govt considers options
By Pattrick Smellie
Aug. 3 (BusinessDesk) - Liquidation of state-owned coal company Solid Energy "cannot be ruled out" but is "not the number one preferred option of the government," says Prime Minister John Key, who confirmed the beleaguered company was discussed today at Cabinet as its banking syndicate grapples with its commercially dire prospects.
"It's in a precarious position," said Key, who expected there could be an announcement on its future "in the next few weeks."
Sale of individual parts of the business was a possibility, among others, but he denied reports that a foreign buyer was negotiating to buy the Stockton mine, near Westport.
Key said the government was not prepared to put more capital into the company, having helped to recapitalise it with $130 million of preference shares in 2013 and provided a working capital funding line then too, although that was largely exhausted earlier this year. Solid Energy warned in February that it was at risk of breaching its banking covenants by early next year. Its chair at the time, Pip Dunphy, resigned after deciding she did not support the government's belief that Solid Energy could be rescued.
The Christchurch-based company then announced in May it would lay off 119 staff at its Stockton and Spring Creek mines from July to cut annual costs by $36 million in the latest of several restructurings since the company, once touted as a pioneer for new energy technologies and slated for partial privatisation, fell foul of tumbling global coal prices following a slowdown in Chinese steel production.
Key stressed the process underway was in the hands of Solid Energy's banks, which took a $75 million collective writedown on the value of their lending to Solid Energy in the 2013 restructuring.
There was "quite a bit of work happening behind the scenes", said Key, and the government had "made it clear to the banks they need to sort the situation out."
Liquidation would be a call for the banks to make, but it was "fair to say liquidation is not the number one preferred option of the government. There are options which would find more favour with the government", but he declined to outline them, while ruling out the possibility of a government guarantee.
"There's a range of other potential options. It's a question of what can be achieved but it's at a very delicate stage."