Having issued its first ever Eurobond in 2014, the Polish oil and petrol group was keen to return with a second transaction – but with such volatile markets, timing was essential. Joanne Hart reports.

Jacek Matyjasik embedded

PKN Orlen is a major Polish oil refiner and petrol retailer. The largest company in central and eastern Europe, according to research by credit insurance advisory firm Coface, it has a dominant presence in its domestic market, as well as significant operations in Germany, the Czech Republic and Lithuania.

Having issued its first ever Eurobond in 2014, the group was keen to return with a second transaction.

“We came to the bond market initially because we wanted to diversify our funding sources and extend our debt repayment profile. We thought it would be a good idea to return to the Eurobond market this year because of nominal interest rates reaching historic lows and PKN Orlen delivering one of the best results ever in 2015,” says Jacek Matyjasik, executive director of finance at the company. “The countries where we operate are all showing stable positive gross domestic product [GDP] growth and, because we are primarily a downstream player, with sales growth linked to GDP growth, low crude oil prices have boosted our profit margins.”

Earlier miss

Since debuting two years ago, PKN Orlen has monitored the bond market regularly. It was about to issue a second transaction in 2015 when the markets suddenly turned sour, forcing a rethink.

“Markets are highly volatile these days. We know what that means as we spent six years after Lehman collapsed waiting to regain our investment grade rating before issuing our first Eurobond in 2014. And last year, when we approached the private placement market, we missed our target by only two weeks, after the Greek debt restructuring saga and risks about Chinese growth unfolded in May and June, closing the markets for almost 12 months,” says Mr Matyjasik. “This time, we knew we had to work promptly so when we spotted an opportunity in late April/early May, we swiftly invited a group of banks to pitch for a new mandate.”

As a business with demanding funding requirements, PKN Orlen maintains close relationships with several banks and saw the Eurobond mandate as an opportunity to reward a select few.

“We approached our top 10 relationship banks and we were very transparent about our criteria for appointing the lead management team. They needed to have a strong track record in our region, a close relationship with our company – measured by balance sheet engagement – and their costs had to be competitive,” says Mr Matyjasik. “We used objective league tables from the rating agencies to ensure there was a level playing field.”

Ultimately, BNP Paribas and Société Générale were chosen as global bookrunners with UniCredit, Citigroup, ING, Santander and PKO Bank Polski as joint lead managers.

Time to move

PKN Orlen had been thinking of launching its transaction about June 7 but, once the lead managers had been mandated, they advised a June 1 date instead. The Organisation of the Petroleum Exporting Countries was meeting on June 2, the US was to issue important data on June 3 and the UK’s referendum vote on June 23 was fast approaching.

“We were advised to move fast to put as much distance as possible between our deal and [the UK's EU referendum] as possible. Much of Europe had a long weekend starting on May 26 and the UK had a bank holiday on May 30 so we did an intense roadshow on May 30 and 31, dividing into two groups so we could visit as many cities and investors as possible,” says Mr Matyjasik.

Having met more than 50 investors in Munich, Frankfurt, London, Amsterdam, Paris, Vienna and Zurich – as well as speaking to dozens more on the phone – PKN Orlen gave initial price guidance to the market on June 1, suggesting a spread of 275 basis points (bps) over mid-swaps. “We wanted to start the day with a price that would attract investors’ attention,” says Mr Matyjasik.

The spread was not only generous in absolute terms, it was also tighter than that on offer from Hungarian oil and gas group MOL, which has a lower credit rating than PKN Orlen and had come to the market just a few weeks earlier. “Quite naturally, we wanted to print better than our regional peers, despite volatility in interest rates and margins,” adds Mr Matyjasik.

Early signs were encouraging. PKN Orlen had told investors that it wanted to issue a seven-year deal of at least €500m and within an hour, the book had reached about €1bn. Later in the morning, guidance was cut to mid-swaps plus 260/265bps; the book continued to grow and guidance was cut by a further 10bps. Ultimately, the bonds were priced at 250bps over mid-swaps, offering a yield of 2.7%. The company was also able to increase the transaction to €750m.

“We were very pleased with the result. We achieved a good price within our target, extended our maturity profile and diversified our investor base, which now includes lots of blue-chip names. Importantly too, investor feedback has been positive overall, which means that we should be able to tap the market again in the future, if we need to,” says Mr Matyjasik.  

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