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UPDATE 3-CEZ finds use for MOL stake with convertible bond
January 28, 2014 / 11:11 AM / 4 years ago

UPDATE 3-CEZ finds use for MOL stake with convertible bond

* CEZ holds 7 pct of MOL after brief gas plant alliance

* Shares remain on CEZ books after MOL’s option expired

* Bond will have 3-1/2 year maturity

* Exchange price EUR 61.25/share (Updates with pricing)

By Jason Hovet

PRAGUE, Jan 28 (Reuters) - Czech utility CEZ on Tuesday placed a 470.2 million euro ($642.93 million) bond convertible into shares of oil and gas group MOL that remain on CEZ’s books after the Hungarian firm passed over an opportunity to buy them back.

CEZ bought 7 percent of MOL in early 2008 to help it fight a takeover attempt. The deal was intended to seal a strategic tie-up of the two central European energy firms, but their plans to jointly build gas-fired power plants have since been shelved.

CEZ said on Monday it was looking at what to do with the 7.68 million shares it still holds after MOL’s option to buy them - at a strike price far above the market level - lapsed last week.

The bond issue on Tuesday confirms what a market source with close knowledge of CEZ’s plans had told Reuters earlier - that it was looking at holding the MOL shares for the next three years via a convertible bond, which would provide CEZ with financing and keep the shares off the market.

The bond will have a maturity of 3-1/2 years and was priced with a coupon of zero, CEZ said on Tuesday.

Buyers were lured by a premium over MOL’s share price in the market.

The initial exchange price was set at 61.25 euros per share, 35 percent above the weighted average price of the stock in the bond pricing period - which was 13,796.4 forints, or 45.37 euros at the exchange rate used.

Bondholders will have the right to exchange the bonds for shares from Jan. 25, 2017, although CEZ gave itself the right to deliver an equivalent amount in cash for all or part of the shares.

Settlement for the bonds is expected on Feb. 4. Barclays Bank and Deutsche Bank are managing the issue, and HSBC and Societe Generale are also bookrunners.

CEZ will have the right to redeem the bonds from February 2017 if MOL’s share price rises more than 30 percent above the principle value.

Shares in MOL traded down 1.3 percent on Tuesday at 13,650 forints, far below the strike price on MOL’s expired option which CEZ has said was 20,000 forints.

CEZ shares were down 2.3 percent at 502.50 crowns on Tuesday, underperforming the wider market.

Majority state-owned CEZ has said the expiration of the option would not affect its earnings because it has been re-evaluating the deal regularly as the MOL share price dropped over the past years. But it said it made money from receiving a fee from MOL for the option.

Proceeds from the bond issue will go to “general corporate purposes”, CEZ said. One analyst who asked not to be named said the money could help support CEZ’s dividend, which is expected to fall along with profits as the company struggles with weak electricity prices. ($1 = 0.7313 euros) (Additional reporting by Robert Muller; editing by Tom Pfeiffer)

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