EBRD invests in first subordinated bond by Polish insurance company

By Axel  Reiserer

EBRD invests in first subordinated bond by Polish insurance company

PZU will use proceeds to support green real estate investments

The EBRD has invested PLN 300 million (€ 71 million equivalent) in zloty-denominated subordinated bonds as part of an aggregate PLN 2.25 billion (€533 million equivalent) issuance by Powszechny Zakład Ubezpieczeń S.A. (PZU).

The Tier II-capital eligible bonds have a 10-year maturity, are callable after 5 years and will be listed on the Warsaw Stock Exchange.

PZU attracted a large order book with orders coming from over 40 investors from Poland and other central and eastern European countries in what was the largest subordinated bond issuance by a Polish financial institution and the first Solvency II-compliant subordinated bond issue by an insurance company on the Polish capital market to date. Solvency II is an EU directive that codifies and harmonises the regulation of the insurance industry, primarily about the amount of capital that EU insurance companies must hold.

Noel Edison, EBRD Director, Financial Institutions, said: “This project supports PZU in raising Solvency II compliant qualifying capital, a first for the Polish capital markets, and is very much in line with the EBRD’s strategic priorities of developing local capital markets for both issuers and investors.”

PZU will allocate at least 60 per cent of the proceeds of the EBRD bond towards commercial real estate projects that meet eligibility criteria for green buildings under the Bank’s Green Economy Transition (GET) approach. The operation will enable PZU to directly invest in commercial property assets in Poland that are designed to high sustainability standards or benefit from sustainability improvements as the first insurance company in the EBRD’s countries of operations.

The PZU Group is one of Poland's largest financial services companies and the leading insurance group in central and eastern Europe, listed on the Warsaw Stock Exchange with a market capitalisation of PLN 39.4 billion (€9.3 billion equivalent) as of June 2017, consolidated gross written premiums of PLN 20.2 billion (€4.6 billion equivalent) and total assets of PLN 125.3 billion (€28.3 billion equivalent) in 2016. Poland’s State Treasury is the single largest shareholder with 34.2 per cent of total capital.

Grzegorz Zieliński, EBRD Regional Director for Poland and the Baltics, said: “We are very pleased with this investment because it combines two important objectives we have in Poland: support for the development of the local capital market and support for the Green Economy Transition approach. Both are key targets for Poland and in both the EBRD is an experienced and resourceful partner who can provide finance as well as expertise. We are happy to see a company like PZU take the lead, and we expect others to follow.”

Tomasz Kulik, CFO of PZU, said: “We have successfully placed the largest issuance of subordinated bonds in the history of the Polish financial sector. Thanks to its simple structure as well as the issuance being based on Polish law, it may serve as example of a funding source for other domestic companies. We positively assess the increased investor interest, which was greater than expected, as well as the realised funding costs of the issuance. As a result, we will be able to keep a strong capital position which guarantees the security and stability of our business.”

Since the beginning of its operations in Poland in 1991, the EBRD has invested almost €8.5 billion in more than 380 projects in the country. In addition to its wide range of products for banks and companies, in recent years the EBRD has built a growing portfolio of investments (both equity and debt) in the Polish financial sector, for which demand remains high.

The EBRD’s new transition concept argues that a well-functioning market economy should be integrated, competitive, inclusive, well-governed, green and resilient.