At the joint press conference organized by the Ministry for National Economy, the Hungarian National Asset Management Inc. and Gedeon Richter Plc., Minister of State for Taxation and Financial Affairs Gábor Orbán said that through the assistance of the Hungarian National Asset Management Inc. the Government repurchased all outstanding Richter exchangeable bonds with nominal value of EUR 833.3 million due 2014 and the Asset Management Inc. concurrently issued new Richter bonds due 2019 exchangeable into the company’s shares, totalling EUR 903.8 million.
As Deputy CEO of the Hungarian National Asset Management Inc. Csaba Polacsek said, the bonds were assigned a rating of BA1 by Moody’s and BB by Standard and Poor’s, neither of which has a negative outlook.
Richter CEO Erik Bogsch stressed that the timing of the transaction was excellent.
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Gábor Orbán revealed that the state will finance maturing bonds from the amount received by the sale of the newly issued bonds, adding that the financial transaction of the deal was completed successfully on 6 October.
As a result of the transaction, another significant tranche of state debt due in 2014 could be pre-financed – and with favourable conditions, the Minister of State remarked. He explained that over the past months there was ample demand on the market of exchangeable bonds and in view of uncertainties regarding American monetary policy and the approaching year-end closure of books it was worth taking advantage of the remaining short time frame.
In the opinion of Gábor Orbán, the fact that this time the bonds yield 3.4 percent in Euros compared to the former yield of 4.4 percent has been the result – besides the successful timing – of improved confidence in Hungarian investments.
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Thanks to the transaction, the Minister of State said, not only the market price and risk premium could be covered from receipts of the deal, but interest accrued since the interest payment in September 2013 as well.
According to the press material published after the press conference, the state has managed to draw extra funding of EUR 34.1 million in such a way that the 35 percent issue premium of the new bonds exceeds the level of the former bonds (32 percent). The 3.375 percent nominal interest of the new bonds and the approximately 3.86 percent effective financial costs reflecting a purchasing premium are both below the 4.4 percent yield of the former bonds. As Gábor Orbán stressed, the transaction secures for the next five years the 25.25 percent stake the state owns in the company, which ensures that Richter “can continue to operate independently, in line with Hungarian economic interests,” as “the state package can even block a potential hostile takeover bid.” The Minister of State added that in 2012 Richter’s contribution to the national economy was HUF 84.4bn through payments of taxes and contributions, investment, R&D and dividend payments and – owing to the significant exports – the company also improves the export-import balance.
Csaba Polacsek pointed out that the general market environment was positive for the deal: bond yields have recently fallen and investors have shifted towards share or share-type investments, however, new offerings have been relatively scarce on the market.
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Erik Bogsch said that it is important for Hungary to have an industrial sector which plays a key part in economic growth, innovation and which also receives substantial state support – and the pharmaceuticals industry within which Richter has been a traditional company fits well into this description. He said that Richter spends HUF 44bn per year on R&D, which is a significant figure even outside the region and he added that the company conducts all R&D activities in Hungary.
Speaking about ownership structure Erik Bogsch said that the only option to have a long-term investor is having the state as stakeholder, and from the aspect of Richter’s strategy the state’s package provides security. He mentioned as an example that the former transaction in 2004 enabled for Richter to launch R&D activities in 2005.
Richter’s CEO underlined how important it is that Richter shares are good investment. Erik Bogsch said that since 1994 they have been paying out 25 percent of profits as dividends, of which the amount paid to the Hungarian National Asset Management Inc. totalled HUF 29bn in 2004-2013. This amount more or less covers the interest payments incurred on bonds.
(Ministry for National Economy)
