Lenders concerned about Termoelectrica split

Termoelectrica’s split into several units, as decided by the Government last week has made foreign investors apprehensive. Those that are about to buy the $320 million bonds issued by the company and those that already hold bonds from previous issues alike.
The split of a company usually worries creditors, who fear the repayment potential will be affected and that the legal status of the new entity will be changed, which leads to concerns about who will pay the debts of the parent company.
This is precisely why a delegation of Romanian officials, which includes Enache Jiru, a secretary within the Public Finance Ministry, will be in London today. The Romanian officials will provide explanations to the JP Morgan investment bank (the lead manager in this loan) about the recent Government decision. The visit takes place one day before the launch of a $200 million bond issue by the company on the Luxembourg Bourse. Another issue, this time worth $120 million, will be launched on behalf of Termoelectrica, but the money will go to the 18 power stations that split this summer, prior to the latest restructuring.
“The information about the projected structure of Termoelectrica has made JP Morgan apprehensive, as it is preparing to launch Termoelectrica’s bonds on the international capital markets. We want to tell them this is only an internal restructuring, intended to make costs transparent, which does not harm the legal status of the company and the potential to repay this issue in any way,” sources close to the deal told Ziarul Financiar.
Another member of the delegation to take a trip to London is the state secretary within the Industry Ministry Iulian Iancu. He was actually the one that announced last week the Government decision to have four branches split from Termoelectrica that should operate as separate entities on the energy market after March 1, 2004, for competitiveness and easier privatisation.
The JP Morgan officials in the UK could not be reached for comment by the time the story was ready for print. According to the quoted sources, the bankers in London had repeatedly demanded explanations about Termoelectrica’s future last week. The reasons for concern also include the 150 million euro bond issue released by Termoelectrica and a consortium comprised of JP Morgan and Deutsche Bank last spring.
The attempts to calm down investors’ fears were started by the Industry minister Dan Ioan Popescu, who said Termoelectrica will not cease to exist, as the reorganisation is intended to make the operations of the company more efficient.
The Romanian officials are now most cautious, after having got burnt in 2000, when Conel was split to form Electrica, Hidro-, Termo-, Nuclear- and Trans-electrica. At that moment, the Conel bondholders demanded advance repurchase by the Romanian authorities (which had secured the issue) claiming the entity that took the loan had ceased to exist.
Back in those years, Romania was even on the verge of defaulting, whilst investment bank Merrill Lynch (lead manager of the issue in question) put pressure on the authorities to repurchase the bonds. The relationship between this bank and the Romanian authorities has since soured and Merrill Lynch has not won any major tender in Romania.