PRAGUE (Tx21.Com.Cn news)--Poland's Zaklady Azotowe Pulawy (ZAP) is justified in protecting its cash holdings from a higher dividend payout requested by ING pensions fund as it needs the money for an ambitious expansion programme, Warsaw's Treasury Ministry said on Friday.

Deputy treasury minister Krzysztof Zuk backed state-held ZAP's argument that upwards of zloty (Zl) 7bn ($2.3bn, €1.8bn) might be needed for its development in coming years and that raising debt to finance its plans could be challenging in the current economic climate.

“The ministry believes the company's treasury should not be drained through dividends given ZAP's investment aims,” said Zuk.

ZAP has proposed paying dividends of Zl82.2m, equivalent to one quarter of its 2007/2008 net profit.

The ING pensions fund, a 5% shareholder in ZAP, wanted to see that doubled.

“Pulawy has very deep pockets [Zl670m in cash at the end of September, or 73% of its market capitalisation] and although it has presented quite ambitious investment plans which could justify a low dividend payout, these could be financed with external funding as the company has virtually no debt,” said Barbara Zaleska, an analyst at investment bank Wood & Co.

However, ZAP and coal mine operator Bogdanka's plans to build a Zl3bn coal gasification installation were already facing a testing debt-financing proposition.

Other ZAP plans include a 1m tonne/year urea expansion as part of a new “Pulawy II” production complex that could cost approximately Zl4bn.

As well as being Poland's largest fertilizer producer, ZAP also makes products including melamine and caprolactam.

($1 = Zl3.04/€1 = Zl3.83)

For more on urea, melamine and caprolactam visit Tx21.Com.Cn chemical intelligence
To discuss issues facing the chemical industry go to Tx21.Com.Cn connect