Inside Out: Energo-Pro Bond Issuance

We reached out to some of the firms involved for more information.

The Players:

• Lead Counsel for Energo-Pro on English Matters: Richard Levy, Partner, Linklaters
• Counsel for Energo-Pro on Czech Matters: Christian Blatchford, Partner, Kocian Solc Balastik (now General Counsel, Energo-Pro a.s.)
• Counsel for Energo-Pro on Bulgarian Matters: Damyan Leshev, Managing Associate, Tsvetkova Bebov Komarevsky
• Counsel for Energo-Pro on Turkish Matters, Sera Somay, Partner, Paksoy
• Counsel for Energo-Pro on Georgian Matters: Giorgi Batlidze, Partner, BLC Law Office
• Counsel for the Joint Bookrunners and Trustee on Bulgarian Matters, Damian Simeonov, Partner, Boyanov & Co.

CEELM: How did you all become involved in this matter? Why and when (and by whom) were you selected as external counsel initially? Richard, since you were lead counsel to Energo-Pro, let’s start with you. 

Richard: We were approached by ENERGO-PRO as a result of an existing relationship between the company and one of our partners. We believe the strength of our international capital markets practice was a key factor in our selection in February 2018.

CEELM: Christian, you and Kocian Solc Balastic were counsel to Energo-Pro on Czech parts of the deal. How did you get involved?

Christian: I should say that, between doing this deal and now, I’ve joined Energo-Pro (“EPAS”) as General Counsel, so I am answering mainly for myself and only unofficially for KSB.

KSB had been acting for EPAS and its group on transactional and other matters for a number of years prior to the bond issuance. Importantly, the firm acted on the debut bond issuance the year before. So, thankfully, the instruction was a natural one. KSB’s involvement on the first deal began when EPAS asked me for recommendations for lead counsel in London. I was in the car heading away for a short break at the time, but got onto it straight away. 

CEELM: Giorgi, what about you and BLC in Georgia?

Giorgi: We have many years of experience cooperating with Energo-Pro a.s. and its Georgian subsidiaries. We have advised them on various transactional matters. It is also noteworthy that we undertook the role of the local counsel to Energo-Pro a.s. in relation to the previous Eurobonds transaction, which concluded in 2017. 

The initial contact between us and Energo-Pro was established in late 2015 through the Czech law firm Kocian Solc Balastik. Since then we have been advising Energo-Pro a.s. and its Georgian subsidiaries on all major transactions and litigation. Therefore, it was quite natural to invite us to support the latest Eurobond offering transaction. No competitive selection took place.

CEELM: Damyan, what about you and Tsvetkova Bebov Komarevsky?

Damyan: We have acted for the Energo-Pro Group on a number of capital markets projects since 2016. For example, we acted as issuer legal counsel to Energo-Pro Varna EAD, which is the group’s Bulgarian holding company covering electricity distribution and supply business. In November 2016, Energo-Pro Varna issued EUR 130,000,000 notes, which is still the biggest ever domestic bond issue in Bulgaria. These notes were fully redeemed, after bondholder approval, with the use of part of the proceeds of the EUR 370,000,000 Energo-Pro a.s. Debut Eurobonds, issued in December 2017. We acted as issuer and guarantor (Energo-Pro Varna) Bulgarian legal counsel to Energo-Pro a.s. concerning these debut Eurobonds. 

With the above background in mind, we were approached again by Energo-Pro a.s. to act as their local counsel on Bulgarian legal matters in respect of the EUR 250,000,000 notes as well.

CEELM: What about you and Paksoy, Sera?

Sera: We were contacted by Kocian Solc Balastik. Our contact person was Christian Blatchford, a partner at the firm.

CEELM: Damian, what about you and Boyanov & Co.? How did you get involved with the joint bookrunners?

Damian: In 2016 we acted as special Bulgarian counsel to the Lead Manager under the largest corporate bond issue (EUR 130 million) in Bulgaria with issuer the Bulgarian subsidiary of Energo-Pro, Energo-Pro Varna EAD. On this deal we were approached by Allen & Overy, as Boyanov & Co. is their local relationship law firm for Bulgaria.

CEELM: What, exactly, was the initial mandate when you were each retained for this project? 

Richard: Our initial mandate was to act as English law counsel for Energo-Pro in relation to: (i) a Regulation S issue of new bonds (this would be the second standalone issuance for Energo-Pro, having issued their debut standalone bonds previously in 2017); and (ii) an accession of 1 new guarantor to the existing bonds issued in 2017.

Christian: As local counsel our role was pretty standard: comments on the prospectus and transaction documents from a local law perspective (particularly on tax), providing capacity legal opinions and generally helping lead counsel as best we could.  

Giorgi: In the very beginning, we were asked to assist Linklaters on any legal issue related to the activities of the Georgian subsidiaries. Our focus was on two key tasks: to support the process of drafting the relevant sections of the prospectus (listing particulars), and to coordinate collection of necessary corporate authorizations, and issuing a legal opinion. 

Damyan: We were instructed to advise on all relevant Bulgarian legal aspects of the transaction, including on the local requirements related to the provision of upstream guarantees by the Energo-Pro Group local subsidiaries, to assist with the drafting of the relevant sections of the listing particulars, to provide legal opinion, to draft corporate approvals. Bulgaria is a key country in which the group operates, hence of significant relevance in structuring the bond transactions by the ultimate holding company as well.

Sera: We were mandated to provide Turkish law advice to Energo-Pro in connection with issuance of EUR 250,000,000 notes guaranteed by Energo-Pro Georgia JSC, Energo-Pro Georgia Generation JSC, Energo-Pro Varna EAD, and Resadiye Hamzali Elektrik Uretim San. ve Tic. A.S,. and in connection with the accession of the Turkish guarantor to the trust deed and to the paying agency agreement.

Damian: We were asked to act as special Bulgarian counsel to the Joint Bookrunners, BNP Paribas, Citigroup Global Markets Limited and J.P. Morgan Securities plc, and to the Trustee under the Notes, Citibank, N.A., London Branch, as, based on our participation in the 2016 Bond Issue of the Bulgarian subsidiary, we were familiar with its corporate status.  

CEELM: Who were the members of your teams, and what were their individual responsibilities?

Richard: In addition to me, the members of the core team were Cecil Quillen (Partner), Rory Renshaw (Managing Associate), and Sirae Chen (Associate). Cecil and I led the team, supported by Rory and Sirae.

Christian: Martin Krejci was a great help, since he is KSB’s most experienced DCM partner. Helena Navratilova did a lot of work on the tax side. Associates Ondrej Mikula (who has since left the firm) and Josef Kriz provided fantastic support, as ever.

Giorgi: Our team consisted of three of four members, led by me. Other members included Tamta Ivanishvili (legal director of BLC), Rusa Tchkuaseli (Senior Associate in charge of capital markets and banking & finance) and Giorgi Kilasonia (Associate for capital markets and banking & finance). My task was to assign sub-tasks to the team and to coordinate the drafting process and content of legal documents drafted by our team. In addition, I was extensively involved in drafting sections related to the energy legal framework, which was crucial considering that Energo-Pro’s Georgian subsidiaries are operating a regulated business in the field of energy generation and distribution. Tamta Ivanishvili concentrated on drafting country risks and other section of the prospectus (listing particulars). Rusa Tchkuaseli’s role involved the review and coordination of transaction specific agreements, like the agency agreement, trust deed, and management letters, etc.). Giorgi Kilasonia supported the process, with a main focus on corporate documents and necessary consents to be obtained in Georgia. Apart from the above, Tamta Ivanishvili, Rusa Tchkuaseli, and I interchangeably participated in all conference calls related to the transaction.

Damyan: I led our team. The partner in charge was Nikolay Bebov, Managing Partner of the firm and head of our Financial Services Law Group. Aleksandar Aleksandrov, the firm’s Energy Law Head, took a specialist role in drafting/reviewing relevant sections of the listing particulars, describing Bulgaria’s energy regulatory and legal environment.

Sera: I led and monitored our team on the project. Beril Paksoy worked on guarantee-related matters, handled daily communication with all parties, drafted corporate documents to be adopted by the Turkish guarantor, and worked on all Turkish law matters related to the project. Pınar Tuzun worked on listing particulars from the Turkish law perspective, and Sansal Erbacioglu worked on tax issues in relation to the guarantee provided by the Turkish guarantor

Damian: The members of the Boyanov & Co. team involved in the project were me, a partner and Co-Head of the Banking & Finance Practice Group, Georgi Drenski, Senior Associate in the Banking & Finance Practice Group, and Ivailo Angelov, a Senior Associate in the Tax Department. As I have vast experience in finance transaction, I led the team, which was also supported by Partner Alexander Chatalbashev, whose areas of expertise involve Energy and Natural Resources.

CEELM: Please describe the final agreement in as much detail as possible: How was it structured, why was it structured in that way, and what was your role in helping it get there? 

Richard: This was the second guaranteed issuance of standalone bonds denominated in euro by Energo-Pro. The deal largely followed the structure of the Issuer’s debut issuance in 2017. Linklaters drafted the disclosure document, co-ordinated with the Irish listing agent in relation to the listing of the bonds on Euronext Dublin, and assisted the Issuer in negotiating the transaction documents for the issuance of the bonds.

Christian: The 2018 deal was designed to mirror the 2017 deal as much as possible, to avoid reinventing the wheel. A&O for the banks and Linklaters, as EPAS’s lead counsel, were in the driving seat on the documentation. I would leave it to them to comment on this point.

Damyan: The EUR 250,000,000 Energo-Pro a.s. notes were designed as a top-up bond issue aiming at refinancing the existing indebtedness of the local subsidiaries of Energo-Pro Group in Georgia, Turkey, and Bulgaria, among others. We participated in the structuring of the refinancing of the existing loan facilities granted to the Bulgarian subsidiaries of Energo-Pro Group and advised on the Bulgarian law aspects of the provision of upstream guarantee by Energo–Pro Varna EAD as a security under the notes. 

Sera: Resadiye Hamzali Elektrik Uretim San. ve Tic. A.S (the Turkish Guarantor) acceded to the trust deed and agency agreement as a guarantor for the existing notes due on 2022 and entered into a subscription agreement as a guarantor for the new notes to be issued by Energo-Pro in the amount of EUR 250,000,000 and due 2024. We advised on preparation of listing particulars from a Turkish law perspective for the issuance of new notes, reviewed and revised all agreements from the Turkish law perspective, and helped the Turkish company provide corporate documents and authorizations for the execution of these agreements.

Damian: The Transaction Documents (i.e., the Preliminary Listing Particulars, Subscription Agreement, Paying Agency Agreement, and Trust Deed), were governed by English law. We assisted in their drafting from a Bulgarian law point of view insofar as one of Energo-Pro’s material subsidiaries in Bulgaria acted as a Guarantor for the bonds. We reviewed, commented on (including suggested amendments to), and confirmed in our opinion the correctness in all material aspects of the statements set out in the following chapters of the Listing Particulars (insofar as those statements purported to constitute summaries of Bulgarian law, or matters governed by Bulgarian law, and subject to assumption and qualifications as set forth in the opinion): the chapter entitled “Legal Information in Respect of the Issuer and the Guarantors”; the chapter “Regulation,” under the caption “Regulation in Bulgaria”; in the chapter entitled “Taxation,” under the caption “Bulgarian tax considerations”; the chapter entitled “Subscription and Sale,” under the caption “Bulgaria”. 

CEELM: What’s the current status of the deal? 

Richard: Energo-Pro successfully issued its EUR250,000,000 4.50 percent Guaranteed Notes due 2024 on May 4, 2018. The bonds are admitted to trading on the Global Exchange Market of Euronext Dublin.

Christian: Completed, with all bonds subscribed for, listed and trading on the Irish Stock Exchange.

CEELM: What was the most challenging or frustrating part of the process? Why? 

Richard: Nothing in particular. 

Christian: There was a bit of difficulty matching the reality of freely-traded listed bonds with the rigidity of Czech tax law. I think in the end, though, that the tax experts did a good job in listening to each other and finding a way through. There was also some delay in closing due to market volatility. We had the thing ready to go but had to sit back and wait for the choppy waters to calm. On a personal note, I was on my back for a week with the flu during the crucial stage of the transaction, which was far from the perceived romance of “big law.”

Giorgi: Structuring of the transaction was smooth and straight-forward from a legal perspective. The only challenge we were facing was the delay of listing due to unfavorable market developments. Listing was initially planned for March 2018, and after several delays, we closed the deal in May 2018. Transactions of this type requires the coordination of multiple parties, counsels, and consultants. All documents in multiple jurisdictions must be executed and aligned for the listing date. Delays and postponements obviously mean that the entire team needs to reduce activities and revive several times, which is not easy to coordinate. 

Damyan: Like any other transaction involving several jurisdictions, the most challenging part for all counsels in relation to the EUR 250,000,000 Energo-Pro Eurobonds was to synchronize efforts in order to achieve consistent approach in meeting the local rules and regulations to which Energo-Pro Group is exposed in all countries where it is present.

Sera: The requests for fast turnaround to emails was sometimes challenging due to heavy email traffic but I would not say I was frustrated by any part of this deal.

Damian: There were many jurisdictions involved: Issuer – Czech Republic; Guarantors – Bulgaria, Georgia, and Turkey. In addition, the coordination of the Listing Particulars’ Section “Regulation in Bulgaria” referring to the Bulgarian energy sector [was challenging] because of the many acts of secondary legislation applicable.

CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?

Richard: Execution of the transaction went smoothly.

Giorgi: As already mentioned, this was a repeat deal, so it was generally pretty easy.

Damyan: As the transaction was a top-up exercise in addition to the EUR 370,000,000 Energo–Pro Eurobonds issued in December 2017, the process of preparing the transaction documents went relatively smoothly. Still, as with any international transaction, there were challenges in setting the final terms and conditions of the notes. The relationship of the new issuer vis-à-vis the previous issues made relevant a careful joint review of both issues as well as of the relevant facilities to be refinanced.

Sera: All teams were in sync which helped us with the process and we managed to close the deal in a short period of time as aimed.

Damian: Our common work and discussions with the legal advisers to the Joint Bookrunners and the Trustee as to English law, Allen & Overy LLP, UK, was very smooth as usual.

CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated? 

Christian: There was a change to the deal mid-way through, but that remains confidential.

Giorgi: The initial mandate did not change and we completed all tasks as assigned from the outset.

Damian: Yes, the final result matched our initial mandate.

CEELM: What specific individuals directed your team’s work, and how did you interact with them?

Richard: Martin Rejna was our main contact at Energo-Pro. 

Christian: Martin Rejna, EPAS’s DCM expert, was of course central to the team’s efforts. But, as usual, everyone pitched in, providing their particular viewpoints and getting the job done. 

Giorgi: We received initial instruction from Christian Blatchford at KSB. As the transaction progressed key individual we interacted with was partner of the issuer’s lead counsel – Richard Levy (Linklaters London). All issues related to jurisdiction were agreed directly with the local counsel of banks – Unana Gogokhia, from BGI Legal. Besides, we had close coordination with the management of the Georgian subsidiaries: Nino Dadunashvili (CFO) and Nikoloz Giligashvili (General Counsel). All communication was done directly either through email or phone. 

Damyan: We coordinated each day with Mr. Petr Milev, Senior Advisor, and Mr. Martin Rejna, Executive Director Strategic Development of Energo-Pro a.s., to discuss the entire process of structuring of the Bulgarian part of the transaction. Our key contact at the English counsel to the issuer, Linklaters, was Richard Levy, Partner, and Sirae Chen, Associate.

Sera: We worked with Linklaters’ London office very closely on this deal and communicated with them very often. We were especially in contact with Rory Renshaw and Sirae Chen from Linklaters’ team. We were also in communication with the strategic development executive of Energo-Pro and the in-house lawyer of the Turkish guarantor in order to assist them on gathering the required corporate documents and authorizations.

Damian: We interacted mainly with Anne Low (Senior Associate), Annabel Ballance (Associate) and Michael Hossack (Associate) from Allen & Overy’s London office.

CEELM: How would you describe the working relationship with the other firms on the deal? 

Richard: The working relationship was professional and effective. The transaction was conducted mostly over email, with regular calls as well. Negotiation of the documents took place over a course of approximately six weeks. 

Christian: Things worked well on our side. Linklaters did a very smooth job. Local counsel in Bulgaria (TBK), Georgia (BLC), and Turkey (Paksoy) were also really good. As ever, the test is getting the job done with minimal fuss. To be very frank, one or two of the bank’s lawyers got up my nose, but not everyone you meet in the law is a nice person.

Giorgi: We had an excellent working relationship with all counsels involved in the transaction both on the issuer’s or the banks’ side. Taking into account the cross-border character of the transaction all communication was done through emails and phone calls. We did not participate in any in-person meetings. 

Damyan: In the course of the work we had weekly calls with Energo-Pro, the underwriters, other issuer counsels (Linklaters as English law counsel, Kocian Solc Balastik as Czech law counsel, BLC Law Office as Georgian law counsel, and Paksoy as Turkish law counsel) and with banks’ counsels (Allen & Overy’s London office, as English law counsel, Allen & Overy’s Prague office, as Czech law counsel, BGI Legal, as Georgian law counsel, Boyanov & Co., as Bulgarian law counsel, and Gedik & Eraksoy, as Turkish law counsel). These weekly calls were very strict and to the point and were always directed towards resolving any potential showstoppers for the successful issuance of the notes.

Our counterpart at Boyanov & Co. (the banks’ Bulgarian counsel) acted in a pragmatic and focused manner and, moreover, as we know each other from pervious transactions, this was of relevance towards achieving the objectives of our respective roles in an efficient manner.

Sera: Communication between the parties generally took place via emails and we did not attend any physical meeting with other firms in this deal. We exchanged emails with A&O’s London team with regards to our Turkish law comments to the listing particulars and English law-governed agreements to which the Turkish guarantor became a party. Additionally, we had phone calls and exchanged emails with A&O Turkey (Gedik & Eraksoy) for the documents required from the Turkish guarantor. Our communication and work with A&O Turkey was smooth and we managed to agree on the content of Turkish law corporate documents and authorizations in couple of emails. It was a fast deal which closed within a month of our mandate.

Damian: Our work was carried out through an exchange of documents and comments on them via email, as well as phone calls (the phone calls took not more than 1/10 of our time on the project). The project documentation was completed very fast (in a couple of weeks) but the launch of the new issue was delayed approximately a month after because of business discussions among the parties.  

CEELM: How would you describe the significance of the deal to the region? 

Richard: This deal reflects international debt investors’ interest in the region generally, and Energo-Pro in particular.

Christian: There are not too many Czech players on the international capital markets (although, of course, AVAST did a huge IPO last year), so it was nice to be involved in a sizeable deal for a Czech issuer. EPAS’s assets are mainly in emerging markets in the Black Sea and Caucasus Region, and so the reasonable size and pricing of this deal was good news in that regard.

Giorgi: There are not many Eurobonds offerings involving Georgian issuers. Therefore, we believe that merely the fact that the Georgian companies demonstrated the ability to comply with all requirements of Eurobonds offering makes this transaction extremely significant. Another aspect to emphasize here is the status and importance of Energo-Pro’s Georgian subsidiaries for the Georgian electricity market. Energo-Pro Georgia JSC is the largest electricity distributor in Georgia, whereas Energo-Pro Georgia Generation JSC is the leading company operating significant part of power plants existing in Georgia.

Damyan: Energo-Pro is one of the most significant foreign investors in Bulgaria’s energy sector. The issuance of the notes provided sufficient funds to Energo-Pro Group across its markets of operation, including to continue its investment program in Bulgaria, which has a very positive effect on the Bulgarian economy and will boost the local energy sector to introduce higher international standards in the production and trading with electricity. Further, the transaction is one of only very few international bond transactions involving businesses in Bulgaria in 2018, signifying nonetheless that Bulgarian companies are very successful in international issuances.

Sera: It is not common to have Turkish subsidiaries of issuers become guarantors under their notes. It was important for us to be part of this structure and assist the Turkish guarantor throughout the process.

Damian: The deal did not have a significant direct effect on Bulgaria as the issuer was the mother company in the Czech Republic. Much more important was the 2016 Bond Issue of Energo-Pro Varna EAD, where we acted as counsel to the Lead Manager.    

This Article was originally published in Issue 6.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.