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Equest Inv Balkans (TBI)

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Thursday 16 July, 2009

Equest Inv Balkans

RESTRUCTURING OF TECHNOMARKET

RNS Number : 8056V
Equest Investments Balkans Ltd
16 July 2009
 



16 July 2009


EQUEST INVESTMENTS BALKANS LIMITED

('EIB' or the 'Company')

RESTRUCTURING OF TECHNOMARKETDOMO DEBT FACILITIES


EIB announces that its wholly-owned subsidiary, Axis Retail NV ('Axis Retail'), has today entered into refinancing arrangements with Raiffeisen Zentralbank Österreich AG ('RZB'in connection with debt facilities provided by RZB to Axis Retail's subsidiary TechnomarketDomo NV ('TMD'). TMD is 61.8% owned subsidiary of Axis Retail with the remaining 25.17% being held by Lyra Investment Holding NV ('Lyra') and 13.03% being held by other former owners of the business and management.

The refinancing arrangements (detailed below) include a partial prepayment by TMD under the debt facilities and the provision of a letter of guarantee by Citibank, N.A., Sofia Branch ('Citibank'to RZB.

Background

One of EIB's core strategies is to focus on TMD, its consumer electronics and home appliances retailing subsidiaryTMD is market leader in Bulgaria and number two in RomaniaThe draft unaudited consolidated accounts of TMD for the year ended 31 December 2008 show revenue in excess of 610 million


In December 2008Axis Retail, TMD and its operating subsidiaries, K & K Electronics EOOD ('KKE') and Domo Retail SA entered into agreements with RZB pursuant to which TMD assumed €65 million of the loans provided to other EIB group companies for the purposes of acquiring holdings in TMD (the 'Refinancing Loans'). RZB also provided €25 million loan facility to KKE (the 'KKE Loan' together with the Refinancing Loans, the 'RZB Loans'). Security for the RZB Loans includes a pledge by Axis Retail of all of its shares in TMD to RZB Axis Retail and Lyra also gave an undertaking to RZB (the 'Undertaking') to facilitate a prepayment of up to €40 million of the Refinancing Loans.  The EIB group has no other exposure under the RZB Loans.

Following discussions between RZB, TMD and Axis in connection with the Undertaking, RZB agreed to accept €20 million in cash, payable by TMD by 15 July 2009, and a bank guarantee from an international bank for the remaining 20 million to be provided to RZB also by 22 July 2009 (thereby securing payment of a further €20 million to RZB no later than 31 December 2009), in exchange for a release of the Undertaking.  

RZB holds security over Axis Retail's holding in TMD. The Board has held lengthy discussions both internally and with RZB concerning the Undertaking and the consequences of a failure to meet it. Rather than being forced to cede control of TMD to RZB, and the likely loss to EIB of all of TMD's value, the Board believes that it is in EIB shareholders' best interests for the Company to provide security over other assets in the Group in order to allow the Company further time to realise assets and refinance TMD and thereby seek to retain control of and protect the value of its investment in TMD.

Partial prepayment of Refinancing Loans

On 3 July 2009, EIB advanced to TMD, by way of shareholder loan, €8 million which TMD used to prepay part of the Refinancing Loans. EIB primarily funded this from the sale of its remaining 16.52% stake in Uniqa Bulgaria  AD  which was announced on 2 July 2009.

EIB has been granted a €12 million bridge facility repayable within 12 months (the 'Bridge Loan') by a Bulgarian bank (the 'Bank'). The Bridge Loan was drawn down on 15 July 2009 and advanced by EIB to TMD by way of shareholder loan so as to enable TMD to prepay the other €12 million of the Refinancing Loans required to be provided to RZB by 15 July 2009.

The Bridge Loan bears interest at 9% per annum and provides for an upfront flat fee of 0.5% payable to the BankEIB and the State General Reserve Fund of the Sultanate of Oman ('SGRF') each hold 50% shareholdings in Borovets Investments EAD. As security under the Bridge Loan, EIB and the SGRF have each agreed to pledge their 50% shareholdings in Borovets Investments EAD in favour of the Bank Borovets Investments EAD indirectly owns a 67% shareholding in a holding company which owns 1,977,131 sq m of land for development in the large scale Borovets (Bulgaria) mountain resort development project (the 'Borovets Project'). To-date, EIB has invested over €25 million in the Borovets Project.


In consideration for agreeing to grant a pledge over its share in the Borovets Project in favour of the Bank and to protect SGRF from potential losses in the event that the Bank takes enforcement action under the Bridge Loan and as security in relation to the bank guarantee mentioned below, EIB has granted a guarantee to SGRF and a second ranking pledge over EIB's shares in Borovets Investments EAD.


Bank guarantee

Citibank has agreed in principle with Axis Retail documentation which, once entered into by Citibank and Axis Retail, will oblige Citibank (subject to receipt of certain collateral) to issue a bank guarantee for €20 million in favour of RZB (the 'Citibank Guarantee'). The Citibank Guarantee will provide that, if TMD is unable to prepay another €20 million of the Refinancing Loans by 31 December 2009, RZB will be entitled to draw €20 million under the Citibank Guarantee. 

As part of these arrangements, SGRF has agreed to indemnify Citibank for losses to Citibank under the Citibank Guarantee and is providing to Citibank the collateral required by Citibank to secure SGRF's indemnity obligations. EIB has agreed to pay SGRF a fee at the rate of 10% per annum of the principal amount of the Citibank Guarantee whilst the Citibank Guarantee remains in existence and uncalled. This fee will rise to a rate of 17.5% per annum on any amount called under the Citibank Guarantee. EIB has agreed to indemnity SGRF against any expenses or losses in connection with the Citibank Guarantee and EIB has granted a fixed and floating charge in favour of SGRF over all of EIB's assets and undertaking (the 'SGRF Security'). The SGRF Security will include a charge over EIB's shares in Axis Retail, as well as over EIB's interests (or the proceeds thereof) in various property holdings including Rodacar, Serdika, Axis-S Retail NV and Immofinance. As from 31 December 2010, SGRF will have the right to exchange any unpaid indebtedness or liability of EIB to SGRF for EIB's indirect 61.8% interest in TMD unless (i) certain conditions related to TMD's business integration and further management appointments at TMD are not satisfied by EIB by 31 December 2009, in which case, SGRF's exchange rights will be exercisable after 31 December 2009 or (ii) an event of default occurs under any of the agreements with SGRF, in which case, SGRF's exchange rights will become exercisable immediately. For the purposes of the exchange, the value of 100% of TMD's shares has been fixed at €20 million.

On-going refinancing negotiations

EIB, Axis, TMD and RZB have entered into a release and waiver agreement pursuant to which, conditional upon RZB receiving the €20 million prepayment and the Citibank Guarantee, RZB will (i) release Axis, Lyra and EIB from the Undertaking, provided that the obligations of Axis and Lyra under the Undertaking shall continue in respect of the prepayment of €20 million, which shall be due and payable on 31 December 2009, (ii) agree to waive any default or event of default under the RZB Loans which may have occurred prior to the date of the waiver, and (iii) agree not to exercise any right of cancellation, termination, acceleration or enforcement under the RZB Loans as a result of a breach of certain key covenants under the RZB Loans until 30 October 2009. TMD and RZB have also agreed to implement amendments to the terms of the RZB Loans on the basis of an indicative term sheetThe detailed terms of the revised facilities are still under discussion and when agreed will be documented in definitive loan documentation.


Related-party transaction

SGRF currently holds 32.27% of EIB's issued share capital and as such is as a substantial shareholder and a related party under the AIM Rules. Furthermore, SGRF owns a 30% shareholding interest in the Bank and, therefore, the Bank also qualifies as a related party under the AIM Rules.

As a result, the arrangements between EIB and the SGRF and EIB and the Bank, as described above, will constitute related party transactions under AIM Rule 13 (the 'Related Party Transactions').  

With the exception of Warith Al-Kharusi and Faisal Al-Riyami who are each executives of  the SGRF, the directors of EIB consider, having consulted with Collins Stewart Europe Limited, its nominated adviser, that, in all the particular circumstances, the terms of the Related Party Transactions are fair and reasonable insofar as EIB's shareholders are concerned. In giving advice to the Board, Collins Stewart has taken into account the Board's commercial assessments of the Related Party Transactions and that, without the Related Party Transactions, the security over Axis Retail's shares in TMD could be enforced with the consequential likely loss to EIB of all of the value of its investment in TMD.

Commenting, Ian SchmiegelowChairman of the Board of Directors of EIB, said:

'EIB is pleased to have completed this refinancing of TMD's debt facilities. TMD remains the market leader in the consumer electronics sector in the Balkans and one of EIB's core assets. We are confident on the outlook for TMD and believe that the company will continue to provide value for EIB's shareholders'.


-ENDS-

  

Enquiries:

Equest Investments Balkans Limited 

Tel: + 44 20 7240 7600 

Petri Karjalainen 

Roger de Bazelaire

Naomi Kora


Financial Dynamics 

Tel: + 44 20 7831 3113 

Nick Henderson 

David Cranmer

Collins Stewart Europe Limited (Nomad)

Tel: +44 20 7523 8350

Hugh Field

KBC Peel Hunt Limited (Broker) 

Tel: + 44 20 7418 8900 

Capel Irwin




This information is provided by RNS
The company news service from the London Stock Exchange
 
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