German Pellets: bond debts and Kago's insolvency

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It is not easy to be a leader of a pellet segment on the market where the price of a barrel of crude oil drops below 30 euros. On January 19, price of the bonds issued by German Pellets plummeted, and today we learn that the company's subsidiary Wärmesysteme Kago GmbH, with headquarters in Postbauer-Heng Bavaria, filed for insolvency. 

As for bonds, the price of those four currently circulating strongly decreased on January, 19. So far, financial experts estimate that the fall of the bonds price was related to the maturity date in April 2016, when the bonds with the total par value of 52 million euros are due. 

According Goldwasser exchange, "the bond (7,25% - 2019) is currently traded just for 40% of its par value against 90% of par value registered on Tuesday night at the sales closing. Three other bonds issues by German Pellets decrease in price at a similar rate. The total value of the bonds issued by German Pellets grew to 240 million euros".

l’obligation (7,25% - 2019) se traite désormais à 40% du nominal, contre un cours de 90% mardi soir à la clôture des marchés.

Les trois autres obligations du groupe décrochent dans des proportions similaires. Au total, l'encours obligataire de German Pellets s'élève à 240 millions d'euros.

- See more at: http://www.oblis.be/fr/news/2016/01/21/explications-baisse-obligations-ekosem-agrar-et-german-pellets-536620#sthash.h9xcBdK9.dpuf

Contacted by Goldwasser exchange, Carsten Scholz, representing German Pellets investment department, indicated that "the latest financial data provided by the company doesn't show any signs that could explain the current fall of bond price". "This fall could have been caused by the refunding of the bonds with the 7.25% interest coupon expected this April with the stock exchange being in the state of unrest," he added. 

The bonds with the maturity date in 2016 have lost 39% in price and are now traded for 52% of par value, the ones due in 2018 have lost more than 50% in price and now are traded for 37% of par value, bonds with the maturity date in 2019 have lost 42% in price and now are traded for 44%. The latest bond issued last November has lost almost 23% in price and now is traded for 60%.( all the data is provided as of January 19, 2016). The issue of the last paper didn't bring the expected results, so there is a big chance the 2016 bond redemption may be postponed.

Kago

German Pellets and its head Peter Leibold had seized an opportunity to diversify their product range with pellet stoves when in 2010 conglomerate Karl-Heinz Kago was experiencing some difficulties. Unfortunately the efforts were fruitless, and now 66 jobs are threatened. 

According to an analysis of the German newspaper SZ, Peter Leibold and his wife completely control the company created in 2014 (100% of assets). In ten years, 18 production sites have been created, not only in Europe, but also in America (Texas and Louisiana). During the first three quarters of 2015 the company generated a turnover of 442.5 million euros and an operating profit of 38 million euros. An honorable result. However, the activity of the enteprise is being undermined by the debt growing due to issuing more and more bonds with the higher interest rates.

The total debt of this medium sized enterprise comes up to 238 million euros. It seems that in the beginning issuing new bonds did help to cover debts for the old ones.  According to SZ, 60% of turnover was realized not by production, but by the commercial activity. A correlation between changes in bond prices, the bankruptcy of Kago and the pellet market stagnation in a context of low prices for fossil fuels is not excluded, given that pellet price in Germany decreased from EUR 274 per tonne in 2014 to EUR 221 per tonne in 2015. The prices got stuck on the low levels, and even the winter season didn't bring the seasonally grown price. 

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Jerry
Jerry
How can an increase from 274 euro to 221 euro be an increase?