Банкеръ Weekly



Trade in bonds in Bulgaria could be described by a single word which is dullness. Even the stock exchange crisis failed to move that market. In fact, a slight decrease in the number of bond issues can be seen this year, but that is not so much due to the unfavourable movement on our stock market (it should be born in mind that the domestic stock exchange does not significantly influence the real economy) but to the bank competition. Striving to attract more funds our credit institutions have begun offering more advantageous interest rates on deposits, making them equal to the rates offered for the Bulgarian issuers' debt instruments. Thus, it has become more advantageous for investors to put their free money in banks than in bonds.
That dull picture was moved by the announcement about a bond issue of Chimimport's subsidiary, Chimimport Holland BV. The scheme was strange enough in order to wake up the players, dozing in the hot summer days. The more so that it is the first issue of its kind in our country as the debt securities are guaranteed and convertible. Their total face value is EUR65MN, distributed in 650 bonds, each of EUR100,000 par. The paper matures in 7 years, bearing a 7% yield, and can be exchanged for Chimimport ordinary shares. The issue was successfully marketed and began to be traded outside the stock exchange on August 22. The issuer - Chimimport Holland BV - is also the loan's user, and the guarantee comes from Chimimport Invest which is one of Chimimport's major shareholders. 11.6 million stocks (representing 7.7% of the capital) of the holding company owned by Chimimport Invest have been pledged in favour of the bond holders. It is interesting that if the buyers demand an exchange of the debt paper against stocks, Chimimport Invest has the right to give money in cash instead of shares in order to prevent diluting the capital. Hypothetically, that would happen if new stocks are issued and exchanged against the bonds. However, it's not clear if such a scenario would come true. The only lead manager of the bond issue - UniCredit Market Investment Banking (through Bayerische Hypo- und Vereinsbank) has refused to give more detailed information about the issue. The only information that was made public was that the paper would be issued at face value and if the bonds are not exchanged, repurchased or annulled before maturity, they would be taken in when they mature on August 22, 2015 at a price of 118.9% of the principal plus the accumulated interest. On the second and fourth year after the issuance the bond holders will be able to require earlier purchase of the accumulated principal increase plus the interest. And Chimimport Holland BV has the right to buy on its initiative all bonds in circulation after August 22, 2011, in case Chimiport's shares are traded at a price equal or more than 130% higher than the initially set price for the exchange which is BGN10.984/apiece. The issue could be additionally increased to EUR15MN at the holding company's discretion.
Chimimport's bond mix is similar to convertible bonds. That kind of debt paper gives an opportunity to be exchanged at a certain time for ordinary stocks of the issuing company. They attract more attention, especially if they are of an expanding company. The principle is that debt instruments are exchanged for stocks at market prices. Convertible bonds are suitable for investors who are not inclined to take a risk. They are known as means for financing joint-stock companies but cannot find many upholders in our country. Convertible bonds give the issuer an opportunity to be relieved of the obligation to repay the principal for the bond loan. And for the investor it opens a possibility to become a shareholder in a developing company. The period before the exchange allows bond holders to decide if the company is attractive to them or not.
So far only one company in our country - Industrial Holding Bulgaria - has issued convertible bonds. That was in 2004 and their holders already have the opportunity to exchange them for stocks. The holding company is also preparing another issue of convertible bonds, worth BGN22MN. The 3-year bonds have a par and issue value of BGN100 and will be bearing a 8.75% annual yield.

The money from the bond issue of Chimimport Holland BV will be used to finance Chimimport's expansion. The holding company's plans include an intention to merge the pension fund TSKB Sila, and LUKoil Granit, as well as the Bulgaria Air and Hemus Air carriers. Chimimport also projects to acquire banks with a fair regional presence in Russia and the Ukraine.
Meanwhile, another Chimimport subsidiary - Chimimport Group - intends to enter the management of the Dimitrovgrad-based fertilizer producer Neochim. That will happen at an extraordinary general meeting of Neochim shareholders, scheduled for September 26. Then the shareholders will vote for Chimimport Group EAD to be approved as a new member of Neochim's BoD. Chimimport Group holds only 2.38% of Neochim's capital.

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