A falling star: will E-Star bondholders get paid in October?

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Can E-Star, once the darling of the Hungarian capital market, pay its bondholders and avoid bankruptcy?

Although Hungarian energy company E-Star does not yet have enough cash to meet its HUF 1.42 billion bond payments due on October 24, analysts believe that it will somehow be able to ensure the necessary funds during the remaining few weeks. But how? “E-Star might either receive the second part of the Polish loan or reach some kind of an agreement with its non-paying municipality customers,” Equilor analyst Ákos Kuti told the Budapest Business Journal. “There is also a chance of it receiving a loan from the Hungarian Development Bank (MFB),” he added. In case the company cannot meet its obligations in October, the rest of the bonds will become immediately payable. 

E-Star, once the darling of the Hungarian capital market, launched its HUF 10 billion corporate bond program in September 2010. The company was one of the first players besides banks to raise financing in the form of a public bond issue. 

But there are bigger concerns than just the October deadline. The main questions are how E-Star will get back on its feet and meet its other bond payment obligations and whether it can avoid bankruptcy. According to Kuti, the company has to launch new projects as soon as possible, preferably in the more promising Polish market rather than in Hungary or in Romania. Other, less optimistic analysts believe that the company will go bankrupt in 2014, the latest. 

E-Star received a long-awaited PLN 36 million loan facility from Bank Zachodni WBK based on an agreement signed on June 15 by E-Star Polska, a Polish holding company held 100% by E-Star. According to the agreement, part of the facility can be used directly by the parent company. However, E-Star claims that it cannot use all the funds for the upcoming bond repayment, as it has significant accumulated accounts payable that need to be settled in order to ensure continuous operations. Although cash at hand was quite high at the end of August, at €6.3 million, the company will probably have spent most of it by the end of October. According to the August flash report, from the PLN 36 million total amount, PLN 12 million served the prepayment of the loan facility that has been used for a gas engine investment in August 2011 and PLN 4 million has moderated the exposure of heating subsidiary EC Mielec inside the E-Star internal financial system. 

E-Star blames the non-payment of its problematic municipality clients, the high level of central costs and the high consultancy fees for its liquidity problems. The company says in its flash report that the outstanding receivables of the municipality portfolio further deteriorated. In the case of three municipalities, E-Star has already launched a litigation process to enforce payments. The company stated that it is not able to finance the delays of the payments due for months or more than a year. Thus, it will terminate the relevant contracts and start more litigations before the start of the heating season.

Two Hungarian private investors, Csaba Soós and József Makra, established E-Star, previously known as RFV, in 2000. The company floated its shares on the Budapest Stock Exchange in 2007. E-Star shares have been listed on the BSE BUX Index since 2010. A year later, the company’s shares were introduced to Warsaw Stock Exchange through a dual listing.

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