Current Report No. 16/2016

Date of preparation: 26 April 2016

Subject: Signing of a Memorandum of Agreement on commencing the operations of Polska Grupa Górnicza Sp. z o.o. 

Legal basis: Article 56 section 5 of the Act on Offerings – information update

In reference to current report no. 10/2016 of 15 March 2016 the Management Board of ENERGA SA (“ENERGA”) reports that on 26 April 2016 ENERGA Kogeneracja Sp. z o.o. („ENERGA Kogeneracja”), an indirect subsidiary of ENERGA SA, signed the Memorandum of Agreement on commencing the operations of Polska Grupa Górnicza Sp. z o.o. (“PGG”) (“Memorandum of Agreement”).

The parties to this Memorandum of Agreement are as follows: ENERGA Kogeneracja, PGE Górnictwo i Energetyka Konwencjonalna S.A., PGNiG TERMIKA S.A., Węglokoks S.A. („Węglokoks”), Towarzystwo Finansowe „Silesia” Sp. z o.o. („TFS”), Fundusz Inwestycji Polskich Przedsiębiorstw FIZAN [Polish Corporates Mutual Fund] (hereinafter jointly referred to as „Investors”) and banks – bondholders of Kompania Węglowa S.A. („KW”) – Alior Bank S.A., Bank Gospodarstwa Krajowego S.A., Bank BGŻ BNP Paribas S.A., Powszechna Kasa Oszczędności Bank Polski S.A., Bank Zachodni WBK S.A. and 13 trade union organizations of Kompania Węglowa.

To define the possible directions of, and grounds for, PGG’s further operation and development, its business plan has been devised and it calls for the following in particular:

a) sale to Polska Grupa Górnicza of KW’s enterprise consisting of 11 mines, 4 establishments and a set of support functions for mines and establishments currently referred to as the head office of Kompania Węglowa;

b) PGG’s achievement of certain levels of profitability;

c) enhancement of PGG’s operating efficiency giving consideration to the re-allocation of some assets.

The investors have declared in the Memorandum of Agreement that they plan to recapitalize PGG for a final amount of PLN 2 billion 417 million. ENERGA Kogeneracja has declared that it will subscribe for shares in PGG for PLN 500 million. ENERGA does not intend to use the full method to consolidate PGG’s financial data.

The financial creditors took part in the work to reach this Memorandum of Agreement. To refinance KW’s current bond issue program, banks and Węglokoks have declared that they will subscribe for new bonds issued by PGG for PLN 1 billion 37 million in three tranches to be repaid in 2019-2026. The exposure taken by Węglokoks will be PLN 421.5 million while the exposure taken by banks will be PLN 615.5 million.

Under this Memorandum of Agreement the trade union organizations, KW and PGG have declared that they will implement the employee memorandum of agreement of 19 April of this year that contemplates, among others, the suspension of some employee benefits.

PGG will operate on the basis of its business plan whose purpose is to keep coal production costs under strict control, achieve specific levels of profitability and enhance the company’s operational efficiency. The implementation of this Memorandum of Agreement requires the execution of specific agreements, including the investment agreement and the bond issue agreement. The date of execution of the investment agreement to which Energa Kogeneracja will be a party is planned for 29 April 2016.