Company Lietuvos Energija today announced it will market a EUR 200-million-euro issue of bonds with a maturity of 7-10 years. The international credit-rating agency S&P gave the Lietuvos Energija bonds a high investment-grade rating of BBB+, i.e., just one step below the Lithuanian state’s rating. Lietuvos Energija is issuing so-called “green bonds”, the proceeds of which will be used for investments in green power development.
With its bond issue, the company joins the ranks of the Baltic region’s other energy giants Eesti Energia and Latvenergo as well as Estonia’s power and gas system operator Elering, which have been using this type of debt instrument for years.
According to Karolis Kybartas, a bond fund manager at INVL Asset Management, one of Lithuania’s leading asset management companies, Lietuvos Energija’s decision to sell bonds is a long-awaited step and beneficial for the country’s entire financial market.
Depending on the issue’s maturity, he said, it is possible that the yield on the Lietuvos Energija bonds will be in the range of 1.3% to 1.6%, i.e., about 60-70 basis points more than the yield on the comparable-maturity Lithuanian government bond. That matches the premium Latvenergo has historically offered relative to Latvian government securities.
“Lietuvos Energija’s bonds are set to become the longest-maturity, highest-rated and highest-yielding Baltic state-owned corporate bonds,” Kybartas said.
Bond issues by state-owned companies in the Baltic countries
| Issue | Maturity | Coupon, % | Yield, % | Issue size, mln EUR | Rating (Moody’s) |
|---|---|---|---|---|---|
| Eesti Energia 2023 | 2023 09 22 | 2.384 | 1.19 | 500 | Baa3 |
| Eesti Energia 2020 | 2020 11 18 | 4.5 | 0.50 | 300 | Baa3 |
| Eesti Energia 2018 | 2018 10 02 | 4.25 | 0.17 | 400 | Baa3 |
| Latvenergo 2022 | 2022 06 10 | 1.9 | 0.97 | 100 | Baa2 |
| Latvenergo 2020 | 2020 05 22 | 2.8 | 0.62 | 35 | Baa2 |
| Latvenergo 2017 | 2017 12 15 | 2.8 | 0.11 | 70 | Baa2 |
| Elering 2018 | 2018 07 12 | 4.625 | -0.16 | 225 | A2 |
Source: Bloomberg.
“Talking about its debt structure, Lietuvos Energija, compared with the companies in this sector in neighbouring countries, has a rather low level of debt – the ratio of net debt to EBITDA is just 1.3, though the structure of its debt is less diversified,” the fund manager noted.
He said Lietuvos Energija currently uses only bank loans to manage its debt, and most of the loans will have to be repaid in the next five years. By issuing a new 7-10 year maturity bond, the company is not only diversifying its list of creditors, but is also taking advantage of an opportunity to lengthen the average maturity of its debt in the still historically-low interest rate environment.
Financial indicators for Baltic state-owned companies, 1st quarter 2017
| Financial results, last 12 months | Lietuvos energija | Latvenergo | Eesti Energia | Elering * |
|---|---|---|---|---|
| Revenuue, mln EUR | 1 076 | 934 | 760 | 136 |
| EBITDA, mln EUR | 258 | 407 | 353 | 76 |
| Investments, mln EUR | 180 | 198 | 120 | 27 |
| Interest expense, mln EUR | 6.3 | 13.5 | 13.3 | 11.4 |
| Net debt, mln EUR | 330 | 531 | 598 | 314 |
| Net debt/EBITDA | 1.3 | 1.3 | 1.7 | 4.1 |
*based on results for 2016.
Source: the companies’ financial statements.
According to Karolis Kybartas, the size of the planned issue indicates the bonds will be offered not only locally, but also to international institutional investors, and that will naturally increase awareness of and trust in the country’s state-owned companies among foreign institutional investors. So it is likely that the Lietuvos Energija bond issue will become a good precedent and impetus for other state-owned companies to take advantage of this financing instrument.
INVL Asset Management is the only investment company in Lithuania that manages bond mutual funds. It currently offers clients two bond funds: the INVL Emerging Europe Bond Subfund and the INVL Global Emerging Markets Bond Subfund. INVL Asset Management is part of Invalda INVL, one of the Baltic region’s leading asset management groups. Companies in the group manage pension and mutual funds, alternative investments, private equity assets, individual portfolios and other financial instruments. They have been entrusted by over 180 000 clients in Lithuania and Latvia as well as international investors with the management of more than EUR 520 million of assets.
INVL and Šiaulių bankas merged their retail services as of 1 December 2023.
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INVL and Šiaulių bankas merged their retail services as of 1 December 2023.