At the beginning of 2013, Greek telecoms group OTE launched a €700m bond issue. The largest corporate debt transaction from a Greek borrower since the sovereign debt crisis erupted in 2010, the deal’s success offered stark proof of changing sentiment towards peripheral Europe.

Hellenic Telecommunications, or OTE as it is more commonly known, is 40% owned by Deutsche Telekom and derives about one-third of its revenues internationally, but it is still the biggest telecoms company in Greece, meaning that the past few years have been predictably problematic.

A glance at its share price performance gives a graphic indication of the company’s changing fortunes. In March 2008, OTE shares were trading at almost €20. By May of last year, they had sunk to just €1.37. The group was selling off businesses and the outlook was bleak, particularly as there were debts of about €1.3bn falling due in 2013 and 2014.

Euro salvation

Fortunately for OTE, European Central Bank president Mario Draghi spoke those now famous words, promising to do “whatever it takes” to save the euro. OTE shares virtually quadrupled from June to December and the company began to consider accessing the capital markets. At the time, its outstanding bonds were trading in the low 90s and yielding in excess of 10%.

“OTE faced the challenge of refinancing its debt amid very adverse market macro conditions,” says Babis Mazarakis, OTE Group chief financial officer. The company decided to adopt a proactive approach, undertaking a series of measures to restructure its debt and increase its appeal to credit investors.

“We did not just wait passively for the opportunity to access the markets. Instead, we followed a strategic plan to tighten the company’s credit spreads and be ready to tap the markets," says Panos Kaliabetsos, OTE Group treasurer. Initially, the company extended the maturity of a €500m portion of a €900m syndicated loan, shifting pressure away from its current liabilities. It then concluded a new four-year facility at Bulgarian mobile subsidiary Globul, leveraging on its solid credit. Immediately after that, OTE concluded a private transaction, exchanging its bonds maturing in 2013 with new bonds maturing in 2015. There were also selective bond repurchases.

“This sequence of strategic actions improved considerably our debt maturity profile and made our credit more attractive, enabling us to access the markets at much tighter yields,” says Mr Mazarakis.

Ready for return

By the end of January 2013, yields on OTE bonds had fallen by about two percentage points, in part thanks to its self-help programme but also improving capital market conditions. On January 29, BNP Paribas, Deutsche Bank and HSBC were mandated to run the books on a new OTE bond transaction.

“We had worked with all three banks in the past, they have a good track record and they have a strong reputation in the debt capital markets sector,” says Mr Kaliabetsos.

A series of one-on-one calls with investors took place as well as a global conference call attended by more than 100 institutional accounts. At the time, the company said it was looking at a five-year transaction of about €500m.

“On the one hand, our aim was to extend our debt maturity profile so it was important for us to issue a five-year tenor bond. On the other hand, we did not want to put €700m of new funds on our balance sheet, as our liquidity was already quite high. Therefore the structure combined a new issuance with a tender offer relating to our 2013 and 2014 bonds. By this structure, €200m of the bond proceeds were used to repurchase our shorter term liabilities,” says Mr Kaliabetsos.

On January 30, the OTE deal was launched with initial pricing guidance of 8% to 8.25%. Within three hours, yield guidance had been revised down to 8% and the size of the bond had been revised up to between €500m and €750m. Demand kept building despite the revised terms and by 1pm UK time, the bookrunners had received 221 orders for €1.9bn of bonds.

Trail blazer

The transaction size was finalised at €700m and priced at 8%, making it the largest corporate Greek transaction since the sovereign crisis. “We were very satisfied with the outcome achieved as OTE is now fully funded. Right after the bond issue, Standard & Poor’s upgraded OTE by two notches. This outcome is a vote of confidence for OTE and for that matter any dynamic Greek company that manages to overcome difficulties in domestic and international markets through good planning and sound management. It is also a positive message for the country itself,” says Mr Mazarakis.

He also believes the deal shows that investors can distinguish between sovereign and corporate risk and appreciate a company’s good credit standing and solid cash flow generation.

Demand for the OTE bonds came mainly from UK institutions, which subscribed for 41% of the bonds. Greek investors took a further 30%, with Swiss investors taking almost 11% and the rest split largely among other European accounts. More than three-quarters of the paper was bought by banks and investment managers while hedge funds accounted for 20% of allocations. Looking ahead, there is every chance that OTE will be back in the market before too long.

“As long as the group has debt outstanding, we will always closely monitor the debt capital markets and be alert in order to take advantage of any opportunity to extend our debt maturity profile,” says Mr Mazarakis.

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