Landmark deal enhances credentials in region

Published: 19 January 2010

Healthy banking sector proves a boon to Czech Republic

HSBC Czech Republic has executed a landmark eurobond transaction for Czech power company ČEZ, considered the most high-profile corporate in Central and Eastern Europe (CEE).

ČEZ is one of the top utility companies in Europe and is 70 per cent owned by the Czech Republic sovereign fund.

Arjan van den Berkmortel, Chief Executive Officer of HSBC Bank's operations in the Czech Republic, said the transaction, finalised in May 2009, was one of the most memorable deals involving his office.

The EUR600 million bond offering order book was more than eight times oversubscribed and contained nearly 300 high-quality European accounts.

“This is the first HSBC-led eurobond for ČEZ and the first for a European utility outside Western Europe,” Mr van den Berkmortel said.

"This deal was the result of months of hard work by a team consisting of colleagues from the local Corporate team and the London-based Debt Capital Markets team. HSBC was engaged as joint lead manager and bookrunner."

Andrew Blach, Head of Corporate and Institutional Banking said: "This is a landmark transaction for HSBC in the Czech Republic".

ČEZ is the corporate counterparty on the local market and HSBC's senior involvement in this transaction cements us as a serious player in the local corporate banking market as well as enhancing our credentials in the wider CEE.

“This is not just a franchise-enhancing transaction, this is franchise-transforming for us here – the team should be immensely proud of this achievement."

In November, HSBC followed up this success by acting as sole lead manager and sole swap counterparty on a new USD100 million three-year, floating rate note medium term note (MTN) private placement for ČEZ.

It was the first MTN private placement executed for any HSBC client in the CEE and further evidence of the Group's growing influence in the region.

Because of its global relationships, HSBC Czech Republic was again one of the key participants when food group Nowaco Czech Republic recently received a syndicated bank loan. Nowaco is a major wholesale food supplier to hotels and restaurants in the CEE.

Mr van den Berkmortel identified significant characteristics of recent deals as "tailor-made hedging solutions and strategies for major clients and structured deposits for corporate and private clients linked to various underlying assets including gold".

"The small export-led economy has suffered from the drop in demand in Western Europe," Mr van den Berkmortel said.

However, the otherwise healthy banking sector, with huge excess liquidity and low external indebtedness, saved the country from having to turn to the international community for financing.

Major structural reforms are to take place, but the crisis made these steps secondary to the four per cent drop in GDP in 2009.

Mr van den Berkmortel said commercial customers in the Czech Republic had become more sophisticated and demanding over the past decade.

"It is not only competition," he said. "Their horizons widened as they accessed new markets and regions. This is helping them to understand better what HSBC can offer and where the bank is clearly making a difference compared to the rest of the crowd."

Asked what would have the greatest effect on the Czech Republic over the next few years, he said: "In the medium
term it is definitely the adoption of the euro, now foreseen as post-2015."

Only after the economic crisis is over will the country have a chance to comply with the eurozone criteria and seriously enter the currency's convergence phase.

The small marketplace will force the weaker banks to leave, and only strong players with a clear competitive advantage and global reach will stay in business.