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July 8 (The following statement was released by the rating agency)
Fitch Ratings says first-time corporate issuers are boosting central European (CE) eurobond volumes amid strong investor demand. In 1H14 six CE companies issued their debut eurobonds totalling EUR3.2bn. We expect a solid flow of eurobond issues by CE companies to continue in 2H14 and 2015, in particular from the capital-intensive energy sector.
Historically, CE companies were far more reliant on bank loans and used less funding from the bond market than their western European peers. This is changing as many CE companies are capitalising on low funding costs and on the large bond amounts with long tenors provided by eurobonds. Domestic corporate bonds are also being issued in some CE countries, for instance Poland and the Czech Republic. Increased diversification of funding sources and a more balanced split between bank loans and bonds are often among the reasons for a bond issue by CE companies and potentially supportive of their credit profiles.
Strong debut eurobond issuance by CE companies included issues in June 2014 by the largest Polish electric utility PGE Polska Grupa Energetyczna S.A. (five-year EUR500m bond rated BBB+), the largest Polish oil refining and marketing company Polski Koncern Naftowy ORLEN S.A. (seven-year EUR500m bond rated BBB-), SPP - distribucia, a.s., the operator of the Slovak gas distribution network (seven-year EUR500m bond rated A) and Petrol d.d., Ljubljana, the leading energy company in Slovenia (five-year EUR265m bond). In January 2014 Polish mobile-phone operator P4 Sp. z o.o. (Play) issued five-year and 5.5-year eurobonds totalling around EUR900m (rated at BB- and B-, respectively) and Czech CE Energy a.s. issued seven-year EUR500m bonds rated at 'B+'.
Strong issuance in June brings the number of first-time corporate issuers from the CE region to more than 20 since the beginning of 2011. The issuers are mainly from the energy, telecoms and transport sectors.
Market conditions on the eurobond market are currently favourable with historically low funding costs and strong investor demand for CE corporate credit, which is partly driven by a drop in issuance by Russian companies. PGE's recently issued eurobonds have a coupon of 1.625% which is the lowest interest rate among notes issued so far by corporates in central and eastern Europe. Polish companies are also issuing bonds on the domestic corporate bond market, which has grown substantially in the past four years to PLN41.8bn (EUR10.1bn) at end-May 2014 from PLN17.6bn at end-2010. PGE, PKN, electric utility Energa S.A. (BBB/Stable) and oil and gas company PGNiG S.A. all have placed large domestic bond issues in addition to their eurobond issuance.
Despite the increase in the past few years, the share of bonds in total debt of CE corporates is still substantially lower than for corporates in developed European markets where it averages about 80%. However, for some CE companies bonds are already the main source of debt, for instance representing 86% of total debt at Czech electric utility CEZ, a.s. (A-/Stable), which is a frequent bond issuer, and 60% of Energa's debt (data as of end-2013).