On September 28, 2020, CEE Legal Matters reported on state-owned Ignitis Group’s initial public offering and admission to the Vilnius and London stock exchanges. We spoke with Walless Partner Joana Baublyte-Kulviete to learn more about the offering.
CEELM: Let’s start with the very beginning. How did the firm first get involved in this deal? At what stage were you brought in and what was your mandate?
Baublyte-Kulviete: We acted for the syndicate of international banks (joint global coordinators and joint bookrunners), comprising the Bank of America, JP Morgan, Morgan Stanley, Swedbank, and UBS. We acted on the banks’ side so, naturally, we came into play a bit later in the process than the issuer’s counsels, who had helped the company to prepare for the IPO.
CEELM: And how did you win the mandate? What do you believe it was about your firm that stood out over the competition?
Baublyte-Kulviete: We got the mandate because of our experience in capital markets – there are only a few firms in the Baltics that match it. Also, we had acted on the previous bond issuances of the company.
CEELM: Please give our readers a bit of context. What do you believe were the main driving forces for the IPO?
Baublyte-Kulviete: The strategy of going public was in the issuer’s mind for some time and it had been preparing for it by conducting three issuances of Eurobonds for a combined value of approximately EUR 1 billion. At the same time, there had been an ongoing debate for a while on whether the state should consider listing state-owned enterprises, to give an impetus to the development of local capital markets. These two factors complemented each other.
CEELM: What aspect, in particular, did you find to be most challenging in this IPO?
Baublyte-Kulviete: The deal itself was very challenging and there were many aspects that have contributed to this. To mention just a few, from the legal perspective:
First, the Ignitis Group was a leading utility and renewable energy company owned by the state, of strategic importance to national security – as such it was subject to a set of special laws and regulations that we had to consider in the IPO process.
Second, the transaction structure combined global depositary receipts, institutional, and retail offerings with listings in Vilnius and London, and thus required a complex clearing and settlement structure with the chain of settlement agents involved. There had not been GDR issuances in Lithuania for more than 20 years and, clearly, there were no precedents that we could rely on.
Third, Lithuanian company law posed additional challenges. The IPO process had to deal with the notarization and registration requirements of a capital increase, as well as with the inflexible regulations of authorized capital, the requirements for necessary reserves amassed by the issuer, and other regulations that invoked extensive discussions around the post-listing stabilization mechanics, to make it feasible.
Fourth, prior to the IPO, the company squeezed-out and delisted two of its important subsidiaries, which caused complaints from investors followed by lawsuits. During the IPO the company achieved a settlement with the former minority shareholders of the subsidiaries, by offering them a preferential allocation of the IPO shares. Naturally, this added another layer of complexity to the deal.
CEELM: On the flip side, what went rather smoothly relative to expectations?
Baublyte-Kulviete: In what was at the time an already established COVID-19 environment, the deal was carried out completely remotely. Someone said afterward that it is surprising that you can do an IPO ‘out of your kitchen’ these days. In fact, remote working conditions ended up helping us be more efficient – we have saved the time normally used by traveling and meetings.
CEELM: If you had to point to one, what would you say was the most important factor contributing to the success of the listing?
Baublyte-Kulviete: I would say it must be the enthusiasm of all those involved, especially the issuer and the local teams of the banks and advisors – we all felt like we were doing something more than just this deal. In fact, this was the largest ever IPO from the Baltics and the first GDR offering from the Baltics after many years. Given the above-mentioned challenges, the advisors’ teams on both sides definitely played an important role, and I believe this enthusiasm added courage and motivation to search for solutions and go the extra mile.
CEELM: You mentioned there had not been a GDR offering in years. Do you believe, after this deal, we can expect more? Why/why not?
Baublyte-Kulviete: I would expect more IPOs by Baltic companies, but it is difficult to say whether they will be in the form of GDR offerings. There are few potential issuers of equal caliber and GDRs are not the only alternative.
CEELM: In your view, what is the significance of this deal for the Lithuanian market?
Baublyte-Kulviete: The deal’s successful completion marked the achievement of the strategic aims set by the Republic of Lithuania (then the sole shareholder of the issuer), to provide the Ignitis Group with the funds to invest in strategically important power networks and expand green generation capacity within the wider region.
Speaking about its significance for the capital markets, after this deal, the size and depth of Lithuania’s capital markets have increased. The deal size was EUR 450 million and the valuation of the company was EUR 1.7 billion. There may have been different views on the financial success of this IPO, especially immediately afterward, nevertheless, I think this deal was significant because of its retail offering, giving many retail investors the opportunity to invest.
CEELM: What about the Baltic region as a whole?
Baublyte-Kulviete: What was said about the significance for the Lithuanian market is relevant for the Baltics as well – it was a historic IPO on the Baltic scale.