The Prague Stock Exchange (PSE) has hosted the first exchange offer involving eurobonds swapped for notes issued and settled in the local currency (Czech crowns).
NET4GAS issued CZK2.64 billion ($119.4 million) of bonds due in 2025 to refinance existing debt. The Czech gas pipeline operator was keen to extend the maturity of the bonds, which would otherwise have become payable in 2021. The liability management exercise is believed to be the first in Europe to exchange a eurobond for notes in a local currency.
The deal was specific and unique because existing note holders weren’t offered another series of eurobonds, with notes governed by English law and hosted on the Irish Stock Exchange. Instead, the new notes were issued under Czech law, with primary settlement in local currency and with a listing on the PSE. The company established a euro medium-term note programme (EMTN) in 2014, under which it issued three tranches of seven-year notes: two denominated in euros (worth €300 million ($348.4 million) and €160 million, with coupons of 2.5% and 3.5% respectively) and one in Czech crowns (CZK7 billion of notes with a coupon of 2.25%).
The simultaneous exchange and tender offer involved the latter tranche in the amount of CZK2.64 billion.
New thinking
The swap transaction was complex and involved novel thinking around the way participation and settlement processes were structured.
“We had to design the exchange and tender offers under English law, but local Czech law governed documentation was also involved for the newly-issued bonds,” says Allen & Overy’s Petr Vybíral, who advised Ceska Sporitelna, the Czech subsidiary of Austria’s Erste Group Bank, which acted as sole dealer manager. “The agency and subscription agreements with Ceska Sporitelna were different and separate from the agreements under the EMTN programme, and so were the Czech law governed terms and conditions for the newly-issued domestic notes.”
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"The agency and subscription agreements with Ceska Sporitelna were different and separate from those under the EMTN programme" |
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The prospectus for that standalone issuance was approved by the Czech regulator, Czech National Bank.
Local investors
The transaction’s commercial and business rationale was to align with the interests of local investors. Existing note holders were predominantly Czech-based credit and other financial institutions including asset management companies, insurance companies and investment funds.
“The thought was they would easily swap out of the eurobond for domestic notes in Czech koruna,” said Vybíral. “The pricing may sometimes also be better on the local market when it comes to the Czech koruna-denominated bonds.”
NET4GAS paid a premium for the swap deal, as the new notes’ coupon is slightly higher than previously (2.75%). The premium was paid to incentivise existing note holders on the 2014 notes to swap out of those notes into the newly issued bonds with extended maturity.
The higher coupon reflects the then current market conditions and pricing and the cost of funding with the extended maturity (the longer maturity, the higher coupon).
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Tear sheet
The bonds were issued on July 17, and were rated BBB by S&P and Fitch. The prospectus is available here.
White & Case advised the issuer, NET4GAS, while Allen & Overy advised Ceska Sporitelna, as sole dealer manager, lead manager, delivery agent, listing agent, fiscal agent and paying agent.
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