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Polish utilities to prop up state coal miner with 1.5B zloty injection

The government of Poland has reached a restructuring deal thatwill see state-owned power and gas utilities PGE SA, Energa SA and PGNiG SA injecting1.5 billion Polish zlotys,equivalent to about US$388 million into loss-making coal miner , Bloomberg News reportedApril 26, citing a joint statement from the companies.

The coal miner will be renamed to Polska Grupa Gornicza Sp. zo.o. and the total capital increase will amount to 2.42 billion zlotys. Under thedeal, state-run coal trader Weglokoks SA will buy about 1 billion zlotys worth ofbonds from Polska Grupa Gornicza, which will be repaid starting 2019.

The capital increase is aimed at helping Polska Grupa Gorniczareturn to profitability in two years. Five banks including units of Banco SantanderSA and BNP Paribas SA were also part of the financing deal.

The company had liabilities and provision amounting to 8.5 billionzlotys and no additional assets to use as collateral. The company will save an estimated230 million zlotys annually by suspending some bonuses, according to the report.

Bank Zachodni WBK SA analyst Pawel Puchalski said, "Withoutan increase in coal prices, this won't be enough to turn the corner" as utilitieswill have to face extra costs and could be under pressure from the government tosign less favorable offtake deals with state-run coal mines, according to Bloomberg.He added that the cost cuts promised by the mining company were not large enough.

The government recently reacheda deal with trade unions at Weglowa to enable the implementation ofthe rescue plan.

As of April 26, US$1 wasequivalent to 3.88 Polish zlotys.