Czech Sewage Utility Taps Hunt for Yield in Koruna OfferingLyubov Pronina and Krystof Chamonikolas
Water and sewage utility SmVaK AS sold the biggest Czech local-currency corporate bond in a year, taking advantage of lower borrowing costs to refinance debt.
The company co-owned by Mitsui & Co. priced 5.4 billion koruna ($223 million) of seven-year debt to yield 2.67 percent, said a person familiar with the offering, who asked not to be named as the details are private. SmVaK paid more than 5 percent to raise 2 billion koruna in 2005, when it last sold bonds.
Severomoravske Vodovody a Kanalizace Ostrava, as the issuer is also known, tapped demand for higher-yielding assets from Czech investors squeezed by record-low interest rates. Central banks worldwide have kept borrowing costs low to spur economic growth.
“The deal shows that cash-rich Czech investors are really desperate for yield,” Lutz Roehmeyer, who oversees about $1.1 billion of emerging-market debt at Landesbank Berlin Investment GmbH and who bid for the bonds, said by e-mail. “I only sought a small piece for diversification as it’s quite expensive.”
The rate on seven-year government koruna-denominated notes has dropped 2.86 percentage points in the past five year to 0.58 percent. Yields on 10-year Eurobonds by CEZ AS, the nation’s largest utility, were 2.03 percent.
SmVaK, based in the eastern Czech city of Ostrava, will use the proceeds to refinance its 2 billion koruna of bonds maturing in November and to distribute as much as 3.35 billion koruna to shareholders via a dividend and capital reduction, according to the sale prospectus. Komercni Banka AS, ING Groep NV and SMBC Nikko have been joint lead managers for the sale.
Fitch Rating assigned a preliminary BBB- rating, the lowest investment grade and five steps below the sovereign. While SmVaK is enjoying a monopoly status, future regulation and declining water consumption may dent revenue, it said in a statement July 2. The refinancing plan is “aggressive” and the resulting increased indebtedness is “a chief constraint” on the credit assessment, Fitch said.
The debt sale was the largest koruna-denominated corporate issuance since gas-pipeline operator Net4Gas a year ago paid 2.38 percent to raise 7 billion koruna of notes due July 2021, according to data compiled by Bloomberg. The note has a BBB rating by Fitch, one step above SmVaK.
SmVAK is owned 99 percent by Aqualia Czech SL, which is controlled 49 percent by Mitsui. Spain’s Fomento de Construcciones & Contratas SA controls the remaining majority stake in Aqualia Czech.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.