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Govt resisting pressure to inject more cash into Solid Energy

02 Mar 2015

Prime Minister John Key says it is "not the government's preferred option" to make a fresh capital injection into the troubled state-owned coal miner, Solid Energy, but dodged journalists' questions at his weekly press conference on whether that might prove necessary, insisting the company and its banks were responsible for its debts.

Asked whether Solid Energy was depending for its ability to trade on its "implicit government guarantee", Key said: "No. It still has equity and cash in the bank."

He would not discuss the reason for last week's resignation of Solid Energy chair Pip Dunphy, although he was aware of her reasons and described Solid as being in a "very delicate position."

The company went through a government-backed bailout in October 2013 after announcing heavy losses that forced a clean-out of senior management and directors, and required banks with lending to Solid take a $75 million "hair-cut", while the government extended $100 million in secured working capital and mortgages.

Sources close to the company suggest that with global coal prices remaining low for the foreseeable future, the company's rate of cash burn cash means it will require either another bailout, new lending terms, another round of restructuring, or even receivership.

The company had "a reasonable amount of private sector debt" and the government had made it clear that remained the responsibility of both the company and its banks, Key said. TSB Bank last Friday announced it was writing off the entire $54 million value of loans it had made to the Christchurch-headquartered state-owned coal company. Other lenders at the time of the 2013 bail-out were ANZ, BNZ, ASB, and Bank of Tokyo, the last of which unsuccessfully attempted court action to block its writedown.

"Banks have an exposure to the company and the question is how do they best believe they can get some of that money back," said Key.

BusinessDesk sought comment from Solid Energy board members late last week, ahead of a board meeting from which the company announced it would delay release of its accounts for the first half of the financial year, citing the potential impact of forward pricing for coal to have an impact on its ability to meet debt repayments when they come due next year. Other SOEs are releasing their profit results this week.

Directors Keiran Home, a Christchurch lawyer, and David Reece, a Queensland-based mining safety expert, both said they intended to remain on the board, with Reece saying Solid Energy was not trading with negative equity "from my point of view, but we have meetings and things we are working through."

"There are a number of plans that we have put forward to make sure it holds together," he said.

Attempts to contact to newly elevated chair Andy Coupe and his predecessor, Dunphy, did not elicit a response from either.

Solid Energy is a victim of both market factors that have worked against it and the legacy of various capital-intensive projects that were promoted to move Solid Energy into renewable and new fuels businesses, none of which was successful before being closed or sold after the company posted a $335 million loss in the year to June 30, 2013.

The company was once slated for partial sale under the government's "mixed ownership model" programme, but is now expected to remain in state ownership indefinitely while its financial difficulties are worked through.

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