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Polish refiner Lotos looks to expand via share sale

08.13.2014  | 

Grupa Lotos SA, Poland's second-biggest refiner, is planning by the end of this year to decide on building a 12 billion-zloty petrochemical plant with Grupa Azoty SA.



Grupa Lotos SA, Poland’s second-biggest refiner, plans to raise about 1 billion zloty ($318 million) from a share sale this year to fund expansion.

The Gdansk, Poland-based company plans to sell as many as 55 million new shares to current shareholders, it said in a regulatory statement. That accounts for 42% of its current 129.9 million outstanding shares.

“We plan to spend all proceeds from the share sale on future investments,” deputy CEO Mariusz Machajewski said in an e-mailed statement.

Lotos is seeking to boost upstream investments locally and beyond the country’s border by developing existing sites and purchasing licenses to increase oil production to about 1.2 million tons by 2016 from 0.5 million tons now. It wants to buy a Norwegian offshore oil field, it said in February, and is also planning by the end of this year to decide on building a 12 billion-zloty petrochemical plant with Grupa Azoty SA.

“The share sale was expected, but is to happen earlier than planned,” said Wojciech Kozlowski, a Warsaw-based analyst at Espirito Santo Investment Bank. “Lotos has many investments plans, but the lack of detailed presentation of the share sale goals is negative.”

Government Stake

Lotos owners will vote on the rights offering plan on Sept. 8. Still, the sale will depend on the Polish government buying new shares. The government holds 53.2% of Lotos, and according to the company, the majority owner will use the Companies Restructuring Fund to pay for the shares. Any share issue that would cut its stake to below 50% would require an amendment to the state policy for the oil industry.

The fund, which is financed by proceeds from state-controlled asset sales, had 2.49 billion zloty in assets at the end of 2013, according to a report by Supreme Audit Chamber.

The State Treasury “isn’t surprised” by the company’s decision to sell shares, ministry spokeswoman Agnieszka Jablonska-Twarog said. A final decision will be announced on the shareholders’ meeting, she said.

Lotos set the record day in the rights issue for Nov. 18 and plans to complete the offering by the end of this year, it said. One Lotos share will grant owners one rights issue.

Financing Azoty

If new shares are issued, it would be Lotos’ first capital increase since April 2005 when the company also raised 1 billion zloty, data compiled by Bloomberg show. Machajewski said in March that the company won’t be able to provide “substancial” financing for the Azoty project without capital increase.

Lotos’s net debt stood at 6 billion zloty at the end of the first quarter and its financial leverage, or net debt to equity, was at 66%. The company took out a $1.75 billion 12-year loan in 2008 to finance the expansion of its Gdansk refinery by 50%. The ratio compared with 33% at its bigger competitor, PKN Orlen SA.

“The rights issue is not particularly surprising, as we have always highlighted that Lotos’s balance sheet was weak and unable to support further large-scale investments,” Wood & Co.’s analysts Bram Buring and Robert Rethy said in a research note. “We would not expect all shareholders to be willing to provide additional funds to the company, although the government and several large core domestic shareholders may ensure a fairly large take up of the rights.”

No Comment

Ewa Radkowska-Swieton, the chief investment officer at ING Groep NV’s Polish pension fund unit, the second-largest investor in Lotos with 6.2%, declined to comment on the fund’s decision.

Lotos, which has been on the lookout for exploration assets in Norway, is seeking to reclaim losses it made on the North Sea Yme oil field. Earlier this week, it said it wrote down an additional 545 million zloty on the Yme project, which will cut its first-half net income by about 191 million zloty.

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