On November 18, 2016, CEE Legal Matters reported that Eesti Energia AS had issued EUR 500 million bonds, which were listed on London Stock Exchange. We reached out to Ivar Kurvits, who acted as the General Counsel at Eesti Energia at the time of the transaction (he is currently General Counsel at AS Inbank), to comment on the deal.
CEELM: This EUR 500 million bond issuance was reported to be the largest in Eesti Energia's history. What concrete plans was this bond issuance made for?
I.K: The main aim of such a large bond issuance for Eesti Energia AS was to use the favorable interest rates that were offered by the market at that time and to reduce the cost of financing for Eesti Energia AS by refinancing the previous bond issuances which carried a higher interest rate. Also the MEUR 500 bond issuance allowed us to reduce the risk related to the number of refinancing events scheduled to take place within the next five years.
CEELM: Where there any particular challenges that arose due to the value that you haven’t faced before?
I.K: I don’t believe that there were any particular challenges related to the legal work due to the size of the issuance itself. The truth of the matter is that it really doesn’t matter whether it is a MEUR 100 or a MEUR 500 bond issuance from the legal perspective as the rules and requirements which have to be fulfilled and ticked are essentially the same.
However from the commercial perspective there is a big difference whether you do a MEUR 100, MEUR 200, or a MEUR 500 issuance. The MEUR 500 issuance requires the banks to be able to find a much larger pool of interested parties to participate in the issuance. This also limits the number of regional banks (in addition to international book runners) which have the ability to take part in the transactions. Also combing the new issuance of MEUR 500 with the simultaneous buyback of already existing bonds requires good relationships with the current bondholders, [so one can] explain the rationale behind such offers in order to make it all happen and run as smoothly as possible when the morning brakes.
CEELM: According to Ellex, "concurrently with the issuing of the new notes Eesti Energia AS bought back EUR 248 million worth of bonds with a maturity date in 2018 and EUR 193.7 million worth of bonds with a maturity date in 2023." Did Ellex advise on that earlier issuance as well? Why did you choose to work with them?
I.K: Before going ahead with the preparation of the MEUR 500 issuance we discussed internally the possible ways of including alternative external legal counsels for these transactions. However, we quickly realized that in order to have a smooth process, it would be logical and cost efficient to have the same external legal counsels advising us on both transactions. The whole MEUR 500 bond issue was so connected with both of these transactions that it made a lot of sense to use the same external legal counsel.
CEELM: What were the considerations for which you led you to list the bonds on the Regulated Market of the London Stock Exchange?
I.K: Ultimately there were two options for the location of the listing of the bonds. Either list some of the bonds also on the NASDAQ OMX Tallinn Stock Exchange or continue with previous practice and go ahead with the full listing at the London Stock Exchange. The choice fell for the full listing at the London Stock Exchange mainly for two reasons: The depth of the market required for a MEUR 500 bond issuance and the lower fees related to the issuance.
CEELM: How did you split the legal work between your in-house team and your external counsel on this matter?
I.K: When it came to the division of work between our in-house team and the external legal counsels then we opted to use a similar approach to that we had used in previous cases. As the agreements were governed by English law our international legal counsel held the pen when negotiating these agreements with the arranging banks and other institutions. The local external counsel was in charge of reviewing the agreements with respect to local legislative requirements. The main focus of the in-house legal team was on the Prospectus — namely drafting various parts of it in cooperation with the internal business and finance team which provided commercial input for the whole document. I believe that such a division of responsibilities between internal and external legal counsel provides a good balance. There are always issues which have to be taken care of by the external international legal counsel already because of the governing legislation. Then again, the real essence of the business is best known and understood by the people working for the issuer itself. That part is reflected in the Prospectus itself.