EUR200MN BOND ISSUE HAS SET A PRICE AT WHICH A BULGARIAN BANK CAN GET MEDIUM-TERM FOREIGN FINANCING
LAWSUITS BETWEEN FIB SHAREHOLDERS CONCLUDEDJonathan Harfield, Chairman of the Management Board of FIB, to the BANKER WeeklyMr. Hartfield, the documents for the EUR200MN bond issue, launched by First Investment Bank (FIB) in the end of January 2005, read that its founding shareholders (Tseko Minev and Ivailo Mutafchiev) are at law with the European Bank for Reconstruction and Development (EBRD) which holds 20% of the Bulgarian credit institution. What is the subject of arbitration?- The papers for the bond issue read that an arbitration case is up before the court regarding the price at which the EBRD wants to sell its shares in FIB and withdraw from the Bulgarian credit institution. But I would like to point out that the arbitration regards the price and nothing else. In fact, the case has already been concluded. Do you mean that a court ruling has been extended?- No. Both sides agreed and the Court of Arbitration in London decided it's pointless to continue the legal dispute regarding the price of shares as no transaction will be effected.Does that mean that the EBRD will not sell its shares in FIB?- I cannot comment what the EBRD intends to do - whether it will keep its stocks in FIB or sell them. It will be wrong if I made such a comment. However, the EBRD has been a shareholder in FIB for five year now, and the term of such investments is usually shorter.The documents on the bond issue mention also that the EBRD is at law with the Bulgarian National Bank (BNB) with regard to FIB's shareholder structure and has already lost by a ruling of a thgree-person panel of the Supreme Administrative Court. How has that lawsuit progressed?- It will not be appropriate for me to comment that case as FIB is not a side in it. You should ask the EBRD or the BNB. I'll only say that from the public recordings of the Supreme Court it becomes clear that it has not proceeded with the case. On page 16 of the bond issue papers it is written that if the founding shareholders (Tseko Minev and Ivailo Mutafchiev) shall cease to own or control at least 51% of the share capital, bondholders are entitled to get EUR1 per each bond in addition to its principal amount value, together with accrued interest to that date. Is that the normal practice? - Yes, this is a standard clause for all bond issues, released by companies in the group of developing countries. If the current owners of the majority stake sell it, holders of bonds in the bank may demand 101% of the bonds' par value. Do you mean to say such a clause is included in the documentation of all eurobond issues of banks or companies?- Yes, both bank and company bonds shall be redeemed in advance together with the agreed bonus if the ownership of the issuer changes.The EUR200MN issue is the biggest corporate bond issue of a Bulgarian company since 1989. What made FIB draw such a big loan?- The issue of eurobonds is a function of what the market seeks and of the seeking of funds on the part of its issuer, as well as his ability to dispose of the money from the sale of bonds. We did not know how much FIB's bonds would be demanded on the market. It turned out that loan was over-subscribed (EUR1.2BN) and the ceiling of FIB's appetite was EUR200MN.You should bear in mind the fact that demand for long-term credits increases in Bulgaria and the risk for the bank will be much lower if it finances its long-term assets by long-term liabilities. Hence, it is important for the bank to reduce the disbalance between the maturity of its receivables and debts. It is the first aim of the issue, and the second one is to provide FIB with additional funds for crediting. But the accent is on reducing the disbalance between assets and liabilities I was telling you about. Isn't the annual 7.7% interest which FIB will be paying too high?- One of the aims of these eurobonds was to launch the first issue to be publicly trade abroad. Without such an issue the price of the Bulgarian medium-term corporate debt on international markets cannot be set. We are aware that the price of FIB's eurobonds is comparatively high. But in the long run it will allow us attract much cheaper funds, because the annual yield dropped below 6% in the current trading of bonds on the market. At what price are the bonds currently traded on the market?- If you want to buy FIB bonds from this issue you'll have to pay now EUR103-104 per EUR100 par. This practically means that your annual interest will be about 5.9 per cent. That is also the price which a Bulgarian bank such as FIB should pay in order to sell medium-term bonds on the international markets. Yet, doesn't the 7.7% which FIB will be paying on its bonds oblige it to extend the funds it gets from the issue as credits at a higher interest rate than its competitors on the Bulgarian market?- Remember what I told you about the reduction of disbalance between assets and liabilities. The money from the eurobond issue will be mainly used for refinancing and payment of FIB's short-term debts. By this issue we practically draw a loan for a longer term, but at a price which is not much higher than the one at which we get short-term financing. In addition, as I said, we are establishing a marker for the price at which we could get credits from the international markets. Do you intend to increase FIB's capital?- Yes, we do.How will you do that - by raising the shareholder capital or by drawing a subordinated fixed debt?- It will be a combination of the two instruments.Will you specify any parameters of that increase?- The target is that after the increase of capital the bank's capital-to-assets ratio is between 13% and 14 per cent.