Telecoms showcase - public to private

Benchmark transactions - from public to private sector

The prime objective of the Bank is to support the private sector. To do this it has financed public sector entities as they make the transition into the private sector.

Benchmark transactions include Rom Telecom in Romania, Lietuvos Telekomas in Lithuania and Hungarian Telecommunications Company.

Rom Telecom, Romania

Phase 1 of the project involved assisting Rom Telecom, the state-owned telecommunications operator, to construct a long-distance digital overlay network in Romania, expand its international and local network capacity to connect 600,000 new subscribers and replace 400,000 existing subscriber lines. The EBRD provided a €142 million senior loan backed by a sovereign guarantee.

Phase 2's main objective was to facilitate Rom Telecom's privatisation and continuation of its investment programme. The EBRD provided an unsecured long-term pre-privatisation corporate loan of US$ 100 million as a private sector transaction. The company was subsequently privatised through the sale of 35% and management rights to OTE of Greece.

Lietuvos Telekomas, Lithuania

In 1994 the EBRD provided Lietuvos Telekomas (Lithuania Telecommunications), the state-owned telecommunications operator, with a US$25 million senior loan backed by a sovereign guarantee. This was used to upgrade the telecommunications systems in Lithuania, including digital switching, call metering systems and transmission equipment.

In June 1998 the company was successfully privatised following the combined purchase of a 60 per cent stake by Telia of Sweden and Sonera of Finland.

The offering was the first significant IPO in Lithuania, forming an essential element of the government's privatisation programme. It added significant liquidity to the country's equity market, and improved Lithuania's exposure to international capital markets.

In June 2000 the government sold off an additional 25 per cent of the operator on the London and Vilnius stock exchanges. The EBRD invested US$ 49.6 million to purchase a 7.7 per cent stake.

Hungarian Telecommunications Company

Phase 1 of the project involved the modernisation and expansion of Hungarian Telecommunications Company's (HTC) facilities as well as the establishment of a trunk network, and replacement of the existing manually operated system by full automation. The EBRD provided a DM185 million 12-year loan backed by a sovereign guarantee, US$ 85 million of which was syndicated to JEXIM Bank.

Phase 2 entailed partial financing of a nation-wide digital overlay network, and the construction and modernisation of the digital and local trunk networks. EBRD financing of US$ 53 million was provided through an equity warehousing transaction, whereby the Bank subscribed to convertible preference shares of HTC, in advance of privatisation, to enhance the attractiveness of the company to potential investors. The shares were subsequently converted to ordinary shares at the same price as that paid by the strategic investor.

This was the first transaction of its kind in the region.

Privatisation of HTC proved to be highly successful and has had a high demonstration effect in the region. In November 1997 the company was listed on the Budapest and New York stock exchanges via an IPO.

The third phase of the EBRD financing supported the expansion and modernisation of the network in anticipation of privatisation. This involved installation of approximately 620,000 new direct exchange lines (DELs), modernisation of existing DELs for business subscribers, full automation of all remaining manual systems and an increase in the transmission and transit capabilities of the digital backbone network.

The EBRD provided a multi-currency corporate loan of US$ 100 million and a loan of US$ 20 million for currency and interest rate hedging in favour of InvesTel (the financing subsidiary of HTC), unconditionally guaranteed by HTC.

The loan comprised an A loan of US$ 50 million for the Bank's own account and a B loan of US$ 50 million syndicated to a consortium of international banks. The loan formed part of a US$ 300 million multi-currency corporate debt facility arranged jointly by the EBRD, the International Finance Corporation and Deutsche Bank.

In June 1998, with the aim of further enhancing the region's capital markets and attracting new investors to the company, the EBRD, utilising part of its equity holding, issued a bond exchangeable into ordinary shares or ADRs of HTC. This was one of the first exchangeable bonds originating from central and eastern Europe and the first ever by a supranational institution.