Report for 2Q 2016 as at 30 June 2016 on the compliance with the terms and conditions of the debenture loan - corporate convertible bonds ISIN Code BG2100003156, issued by IHB PLC in 2015
REPORT
for 2Q 2016 as at 30 June 2016
on the compliance with the terms and conditions of the debenture loan
issue of corporate convertible bonds ISIN Code BG2100003156,
issued by Industrial Holding Bulgaria Plc in 2015
This Report on the compliance with the terms and conditions of the debenture loan – issue of corporate convertible bonds ISIN code BG2100003156 issued by Industrial Holding Bulgaria Plc. /IHB Plc. or the Holding/ includes information regarding the maintenance of the financial ratio presented with the audited interim separate financial statements for 2Q of 2016 as at 30 June 2016.
1. Compliance with the terms and conditions of issue of convertible bonds 2015
1.1. Convertible bonds issue 2015 listing at Bulgarian Stock Exchange - Sofia AD
On 21 May 2015 the trading of corporate bonds issue 2015 of IHB Plc started at the BSE Sofia Main market, Bonds Segment. The stock exchange code is 4IDF. The issue amounts to BGN 49,999,600.00 and the number of bonds is 499,996 with nominal value of BGN 100 each.
The market batch is one lot equal to 10 bonds. The listing price as of 21 May 2015 was equal to 100% of the nominal value.
The transaction cash settlement is executed in BGN.
1.2. Holding a General Meeting of Bondholders and election of a representative of the bondholders
On 12 May 2015 the first General Meeting of Bondholders was held and Mrs. Antoaneta Mihailova Dimolarova, attorney-at-law, was elected as representative of the bondholders. The representative will be entitled to remuneration of BGN 250.
1.3. Payments on the debenture loan issue 2015
Bondholders registered as such in bondholders book kept by Central Depository AD not later than 3 business days prior to interest payment date, respectively 5 business days prior to final interest and principal payment date, which is also the final maturity date of the issue, have the right to interest payment.
The nominal interest rate applicable to the current issue of convertible bonds is fixed at 6.5 percent per annum for the entire duration of the loan contract.
The interest payment period of the debenture loan issue 2015 is a 6-month period with fixed dates of payment as follows: 10 October 2015, 10 April 2016, 10 October 2016, 10 April 2017, 10. October 2017, and 10 April 2018.
On 10 October 2015 IHB PLC made the first and on 10 April 2016 it made the second interest payment. The interest payments are carried out by Central Depository AD.
1.4 Conversion ratio and conversion price
By virtue of the decision for convertible bond issue 2015, the Managing Board of IHB has determined the number of new shares to be converted into one bond when exercising the right of conversion and their price, the so called conversion ratio and respectively, conversion price.
The conversion price is equal to the nominal value of one bond divided by the conversion ratio – the price at each a new share is acquired when converting bonds into shares.
The Managing Board of IHB set a conversion ratio of 100 shares for each bond issue 2015 with nominal value of BGN 100, which defines a conversion price of BGN 1.
Under the terms and conditions of the debenture loan issue 2015 it is possible to adjust the conversion ratio and conversion price when certain events occur – for example, issue of new shares (capital increase of IHB through cash), issue of new unpaid shares (capital increase of IHB by converting part of profits into capital), payment of dividends, reduction of capital. In these cases, the bondholders will be notified in due time, following the same procedure as that applicable to the disclosure of information to the Financial Supervision Commission (FSC), Bulgarian Stock Exchange (BSE), Central Depository (CD), and the public.
2. Utilization of the funds from the debenture loan issue 2015
As specified in the Prospectus, management of IHB intends to use the funds raised from the issue to reimburse the debenture loan under a previous issue of convertible bonds - ISIN BG BG2100006134, issued by IHB and financing other projects of the Holding and its subsidiaries, according to the priorities at the time of its preparation:
Utilisation of funds№ / Utilization / Amount (BGN) / Note
1 / Repayment of debenture loan / 29 999 800 / Issue of convertible bonds ISIN code BG 2100006134
2 / Odessos PBM AD
Bulport Logistics AD / 7 500 000 / Financing of investments - second instalment for the purchase of shares of the companies
3 / Odessos PBM AD
Bulport Logistics AD / 6 700 000 / Refinancing of investment to purchase shares of the companies
4 / Bulyard AD / 780 000 / Refinancing of investment to purchase shares of the companies
5 / KRZ Port Bourgas AD / 3 316 000 / Refinancing of investment - the third stage of the cereal sector
6 / Other / 1 643 764 / Other projects of IHB and its subsidiaries
TOTAL / 49 939 564
Source: Industrial Holding Bulgaria PLC
Investment costs are approximate
On 09 April 2015 the public offering was successfully closed and on 20 April 2015 the Commercial Registry published announcement for opening of new debenture loan. The Holding raised BGN 49,999,600.00. The net amount of the proceeds from the public offering after deducting the expenses of the Issuer, commissions paid, fees, and other expenses, including fees paid to the FSC, is BGN 49,947,500.
As stated in the Prospectus, the main priority of the bond issue 2015 is to repay the loan under the previous issue of convertible bonds ISIN code BG2100006134 issued by IHB in 2013. Below are described the results of the procedure for allowing holders of convertible bonds issued by Industrial Holding Bulgaria PLC issue ISIN code BG2100006134, to convert their bonds into shares:
· Completion date for submission of applications for conversion of the bonds: 03 April 2015;
· Number bondholders expressed their wish to convert bonds into shares: 9.
· Total number of bonds for conversion into shares – 94,221 with nominal value of BGN 100 each;
· Total number of shares subscribed for convertible bonds – 9,422,100;
· The issuer and the investment intermediary have not encountered difficulties; there were no disputes and other controversies in converting bonds and subscription for shares.
By virtue of decision dated 16 April 2015 the Registry Agency registered with the Commercial Register an increase of the capital of Industrial Holding Bulgaria PLC from BGN 67,978,543 to BGN 77,400,643 through the issue of new 9,422,100 ordinary, registered, dematerialized, freely transferable shares vesting the right of 1 vote at the General Meeting of Shareholders, with nominal value of BGN 1 each, issued due to the conversion of 94,221 registered, dematerialized, convertible bonds ISIN code BG2100006134 into shares.
On 20 April 2015 the fourth interest payment and the payment of the principal on the convertible bond issue 2013 was made. Bondholders registered as such in the book kept by Central Depository AD as at 09 April 2015 had a right to interest payment. Bondholders registered as such in the book kept by Central Depository AD as at 09 April 2015, who had not exercised their right to convert the bonds they hold into the corresponding number of shares of IHB in that period, had a right to payment of the principal. The principal paid amounted to BGN 20,577,700, and thus, the obligations of IHB on the debenture loan bond issue 2013 were repaid.
The remaining portion of the funds raised from the issue was used by IHB management to refinance and finance its own and investment projects of its Group subsidiaries, with the main objective being to consolidate its portfolio in the construction, ship repair and port industries.
The funds from the new issue were used to refinance the first instalment of USD 4,250 thousand for the purchase of shares of the capital of the Varna ports Odessos PBM and Bulport logistics, as well as USD 500 thousand to refinance the transaction for the acquisition of shares of Bulyard AD, Sofia, at the end of 2014.
Aiming at reducing both the negative impact of the high levels and volatility of the US dollar on the amount of the total interest-bearing debt of the Group and interest expenses, management has taken measures to further early repayment of part of the obligations of its subsidiaries to banks and related parties. By using the funds raised from the new issue, in April 2015 bank loans amounting to USD 4,899 thousand and USD 1,237 thousand due to related parties was repaid, as also bank loans in BGN and EUR amounting to BGN 5,849 thousand and BGN 9,025 thousand respectively, as follows:
· Bulyard Shipping Industry AD repaid BGN 2,557 thousand from the revolving credit line, opened and used by the Group for working capital; repaid early and in full the remaining portion of BGN 3,324 thousand of a secured bank loan for working capital maturing in September 2018;
· Privat Engineering AD repaid early and in full the remaining portion of BGN 7,078 thousand (USD 3,893 thousand) of a secured investment credit maturing in August 2018;
· Tirista Ltd repaid early the principal of USD 1,132 thousand, due by the end of 2015, of a secured bank loan maturing in December 2017;
· loans to related parties amounting to BGN 11,224 thousand were repaid.
Using the funds from the new bond issue, IHB paid USD 1 million from the second instalment due under the contract for purchase of shares of the capital of Odessos PBM.
In view of the trends and uncertainties regarding the development of the enterprises operating in various industries, IHB management reserves the right to restructure the investment intentions within the Group in accordance with the change in its priorities. For example, the refinancing of the construction and expansion of the cereal sector of KRZ Port Bourgas AD will be carried out in stages, in order to shift the time of the administrative procedure. Funds from the new issue were used to refinance investment costs of the company amounting to BGN 500 thousand incurred in the implementation of the third stage of the cereal sector.
In the following years, new capital costs within the Group can be incurred for financing of new or developing ongoing projects of IHB and its subsidiaries, including in relation to the expansion of the port terminal in Bourgas, signing of contracts for the purchase of ships, investing in priority projects, and other similar. The investments projects of the Group companies are financed in order of their occurrence in time. Ongoing projects are funded and implemented with priority. Some of the projects are funded using the funds raised from the bond issue and own funds, depending on the investment needed and available cash at the time. IHB PLC is ready to meet the financial needs of ongoing projects through bank loans and lease schemes. If necessary, the Holding will continue to finance the current development of the Group companies. It is possible that capital expenditure for new acquisitions and business expansion will be needed. Decisions on the amount and sources of the necessary financing will be taken on a case-by-case basis.
As at the time of preparation of this report, IHB PLC has utilised fully the funds raised under bond issue 2015 ISIN code BG 2100003156.
3. Maintenance of financial ratios as at 30 June 2016
In compliance with IFRS, as at 31 December 2015 the separate hybrid component related to the conversion option was separated from the new bond issue. An analysis of the prevailing market interest rate for similar debt of issuers with similar risk profiles without conversion options was carried out. Based on the results from the analysis, the liability component of the bonds was calculated based on the present value of cash flows. The remaining balance of the issue was recognised as an equity component. The relevant disclosures were made in the financial statements.
The classification has no effect on the calculation of the financial ratios, which IHB PLC is obliged to comply with throughout the entire period of repayment of the debenture loan, i.e. when making the calculations the entire bond issue was recognized as a liability.
All calculations had been made on an individual basis.
Financial ratios(on an individual basis) / 2012 / 2013 / 2014 / 2015 / 2015 – 2018
forecast / 2Q 2016
Liabilities / Assets / 23% / 18% / 24% / 26% / ≤ 65% / 25%
Interest coverage / 4.9 / 7.5 / 1.4 / 4.7 / ≥ 1.2 / 3.2
Interest-bearing debt / Assets / 13% / 18% / 23% / 26% / ≤ 50% / 25%
Liabilities / Assets ratio
The ratio is calculated by dividing the total short-term and long-term borrowed funds by the total assets as per the balance sheet at a particular date. IHB PLC has undertaken to maintain a Liabilities/Assets ratio not higher than 65% throughout the entire period of repayment of the debenture loan. The ratio as at 30 June 2016 was 25%.
Interest coverage ratio
The interest coverage ratio is calculated by dividing the operating profit, plus interest expenses, by the interest expenses as per the income statement for the same period. IHB AD has undertaken to maintain an Interest coverage ratio not lower than 1.2%. The ratio for the first six months of 2016 was 3.2.
Interest-bearing debt / Assets ratio
The ratio is calculated by dividing the total short-term and long-term interest payables by the total assets as per the balance sheet at a particular date. IHB AD has undertaken to maintain an Interest-bearing debt/Assets ratio within the limit of 50% throughout the entire period of repayment of the debenture loan. The ratio as at 30 June 2016 was 25%.
This report was approved by decision of the Supervisory and Managing Boards of Industrial Holding Bulgaria PLC dated 29 July 2016.
Daneta Zheleva,
CEO of Industrial Holding Bulgaria PLC
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