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Poland persuades three blue-chip firms to help rescue coal sector

Poland has persuaded at least three major companies to contribute to a bailout of troubled coal miner Kompania Weglowa, despite some executives' misgivings about the commercial logic of getting involved, sources with knowledge of the matter said.

After weeks of talks with more than a dozen firms it hoped would take part in the rescue, government officials have received proposals from three: copper miner KGHM, utility PGE and chemicals producer Grupa Azoty , the sources said.

"Arms are being twisted," said a source close to one of the companies involved.

The government, facing a tough re-election battle in October, cannot afford to let Kompania Weglowa go bankrupt because it depends on votes from mining regions, but it is also barred by European Union rules from giving state aid.

The solution -- persuading firms to invest in a fund which will become a Kompania Weglowa shareholder -- has raised concerns among some investors that the government is sacrificing free market principles for the sake of political expediency.

The three companies preparing to take part in the rescue are state-controlled, but a significant part of their equity is held by private shareholders who want the firms to return profits and dividends.

Another state-controlled firm, insurer PZU was asked by the government to contribute, but it declined, according to a source close to the matter.

The insurer is in talks to buy banking assets and having exposure to the mining sector -- which is in deep financial trouble with several firms close to bankruptcy -- could affect its ability to make acquisitions.

"Higher investment risk in the mining sector is not favourable in bank negotiations," the source said. "There are companies more suited to have miners in their portfolio."

RESCUE FUND

Two sources familiar with the negotiations over the bailout said the government was also in talks with the country's No.1 oil refiner, PKN Orlen, about contributing. PKN was not available to comment.

KW, which is the EU's No.1 coal miner, and JSW, the bloc's biggest coking coal producer, are both facing insolvency, an outcome which would anger politically-influential mining unions in an election year.

To avoid that, Poland's treasury ministry has forged a special fund whose function is in part to help the troubled state-run miners. It will have 6 billion zlotys ($1.59 billion) worth of assets..

The fund is also intended to invest in other sectors, the government has said.

State bank BGK and its investment vehicle PIR are to invest 1.5 billion zlotys in the fund by the end of August. The rest is supposed to come from major Polish companies, either in the form of cash or non-cash assets.

According to sources close to companies in talks with the government, PGE tentatively offered a combination of cash and its telecom arm Exatel as its contribution to the fund.

The sources said KGHM, Europe's No. 2 copper producer, would offer spa resorts in Poland which are controlled by KGHM's investment fund for non-core assets, the sources said. Azoty was also to offer assets.

The sources said that the negotiations were still underway and that proposals from the companies could change.

PGE and Azoty declined to comment on the issue. A KGHM spokesman said the company was considering transferring some non-production assets to the government-created fund, but did not give the value or say what they were.

"KGHM, as a national champion, understands the need to support Polish economic entities on reasonable business terms," the spokesman said.

source: http://www.reuters.com