Deputy CEO Marek Wadowski told a press conference that Azoty's net debt to EBITDA ratio would exceed the acceptable values in financing agreements.

"The liquidity situation is good, but due to the decrease in the result, we see a risk that the net debt to EBITDA ratio will exceed the acceptable values contained in financing agreements. The maximum level of this ratio is 4.0", Wadowski said.

Wadowski said the ratio was higher at the end of March, but Azoty is not required to report the ratio to its financial institutions until the end of the first half.

"We will work with financial institutions to conclude appropriate agreements," he added.

Azoty's shares were down 5% by 1153 GMT.

Analysts at Erste Group said the first-quarter results, published on Monday, were in line with management's previous estimates.

"Negatively surprising is the low cash flow from operations and the marked increase in debt," Jakub Szkopek at Erste said.

"Management reiterated that it sees a risk of breaching bank covenants at the end of H1'23. The recommendation not to pay dividends from 2022 earnings should not come as a surprise in this context."

In the first quarter Grupa Azoty's EBITDA loss reached 400.9 million zlotys.

"The consequence of the situation in the macroeconomic environment was limited demand for the group's products and the related lower sales volumes and falling product prices", the company said in a statement.

Azoty highlighted high energy costs among other factors that affected its first quarter.

Wadowski said the company expects the market situation to improve from the third quarter in its chemicals business.

"We see opportunities for the market situation to improve in this area," he said. "We assume that a slight tendency to improvement here may take place already in the third quarter, however, we still have to take into account that we will be operating in a market that poses challenges to us."

The company is currently in talks regarding agreement conditions with energy suppliers, including its main gas provider PKN Orlen.

($1 = 4.1422 zlotys)

(Reporting by Adrianna Ebert, Patrycja Zaras and Maria Gieldon. Editing by Jane Merriman)