Belgacom Case Study 20100111
BELGACOM
THE INAUGURAL INSTITUTIONAL
BENCHMARK BOND OFFERING
Case Study∗
On 25 August 2006, Belgacom announced it reached an agreement to buy in cash the remaining 25% stake in Belgacom Mobile (Proximus) that Vodafone owned, for a total amount of EUR 2 billion. Belgacom had so far no leverage and this announcement was very well received by the market as the share price increased by 0.92 % the same day and 9.8% over the following month, while the Belgian BEL20 index decreased respectively by 0.03% on the announcement day and increased only by 3% over the following month. Rating agencies (Exhibit 1) on the other hand had a different view : while Moody’s reaffirmed its Aa2 rating but changed its outlook from stable to negative
(Exhibit 2), S&P downgraded its rating by one notch, from A+ to A (Exhibit 3), to reflect the increased financial indebtedness of the group following this acquisition.
The approval from Belgian competition authorities was received in October and following this transaction, Belgacom Mobile became a wholly-owned subsidiary of
Belgacom. The transaction was funded with cash and a EUR 1.8 billion 364-day acquisition bridge loan facility (Exhibit 4), fully underwritten by a group of 5 banks
(BNP Paribas, Citigroup, Fortis Bank, ING and JP Morgan), to be taken out in the EUR corporate bond market and the bookrunners who committed the bridge financing were in a very good position to be mandated for the inaugural benchmark bond transaction.
During the preparation of the bond transaction, the banks advised Belgacom to add a coupon step-up language in the documentation, granting an additional interest rate of 50
∗
This case was written by Yassine Boudghene and Eric De Keuleneer, Solvay Brussels School of
Economics and Management (ULB). It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case was made possible thanks to the cooperation of Belgacom
THE INAUGURAL INSTITUTIONAL
BENCHMARK BOND OFFERING
Case Study∗
On 25 August 2006, Belgacom announced it reached an agreement to buy in cash the remaining 25% stake in Belgacom Mobile (Proximus) that Vodafone owned, for a total amount of EUR 2 billion. Belgacom had so far no leverage and this announcement was very well received by the market as the share price increased by 0.92 % the same day and 9.8% over the following month, while the Belgian BEL20 index decreased respectively by 0.03% on the announcement day and increased only by 3% over the following month. Rating agencies (Exhibit 1) on the other hand had a different view : while Moody’s reaffirmed its Aa2 rating but changed its outlook from stable to negative
(Exhibit 2), S&P downgraded its rating by one notch, from A+ to A (Exhibit 3), to reflect the increased financial indebtedness of the group following this acquisition.
The approval from Belgian competition authorities was received in October and following this transaction, Belgacom Mobile became a wholly-owned subsidiary of
Belgacom. The transaction was funded with cash and a EUR 1.8 billion 364-day acquisition bridge loan facility (Exhibit 4), fully underwritten by a group of 5 banks
(BNP Paribas, Citigroup, Fortis Bank, ING and JP Morgan), to be taken out in the EUR corporate bond market and the bookrunners who committed the bridge financing were in a very good position to be mandated for the inaugural benchmark bond transaction.
During the preparation of the bond transaction, the banks advised Belgacom to add a coupon step-up language in the documentation, granting an additional interest rate of 50
∗
This case was written by Yassine Boudghene and Eric De Keuleneer, Solvay Brussels School of
Economics and Management (ULB). It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case was made possible thanks to the cooperation of Belgacom