Belgacom case study

Topics: Bond, Debt, Bonds Pages: 83 (3025 words) Published: January 15, 2014
4 May, 2013
Investment Banking

Benchmark Bond Offering Case
Belgacom The Inaugural Institutional
Benchmark Bond Offering
Alizée Hardy
Orea Lika
Rossella Miccolis
Yasmine Nouri
Margaux Vandenbossche
For Lecturer Yassine Boudghene
Assistant Quentin Bodart

Case context
§  In 2006 Belgacom acquisition of the remaining 25% stake in Proximus that Vodafone owned.
§  Consideration was EUR 2bn
§  Financed by cash and EUR 1.8bn “1y bridge loan
§  The debt is taken out by issuing bond
§  First bond offering on the primary market


What is a “bridge loan”? (Question #1)
“A way of financing in the short term (up to one year) until a person or company secures permanent financing.”



Higher interest rate
Backed by some form of collateral
Contracted in a smaller period of time
Relatively less administration work

Reasons for short term financing needs
(Question #1)
§  Belgacom wanted to take advantage of a short-term opportunity in order to secure long-term financing.
§  Belgacom wanted to buy in cash the remaining stake owned by Vodafone for EUR 1.8 bn.
§  The objective was to raise capital by issuing new bonds on the corporate bond market.
§  However, bond issue takes time and the cash was needed quickly to lock-in the deal.


Rationale of a bridge loan for financing the
acquisition (Question #1)

Ø  “Bridge the gap” between the acquisition of the remaining stake and the issuance of the bonds.

Ø  Gave Belgacom the “luxury” to wait in order to lock in the best pricing conditions in the bond market.


Alternative financing sources (Question #1)
§  Letter of comfort:
“A document prepared by an accounting firm assuring the
financial soundness of a company.”

+ Allows to put the deal on “hold” until Belgacom issued the bond and raise the capital necessary to close the deal.

- Losing the deal or poor market conditions.


Alternative financing sources (Question #1)
§  Bill of exchange/ letter of credit:
“It is a document that binds one party to pay a fixed sum of money to another party at a specified future date… The seller then seeks reimbursement from the buyer or from the buyer's

+ Belgacom would pay the agreed price to Vodafone on the
date the bond is issued.

+ Smaller interest than on the bridge loan.
- Vodafone has to agree.

Alternative financing sources (Question #1)
§  Commercial paper:
“An unsecured promissory note, with fixed maturity with no more than 270 days, issued mainly by corporate to get money
to meet short term obligations.”

+ Allowed Belgacom to obtain short term financing in a
cheaper way than interest of the bridge loan, but higher rates than bonds.


Excellent credit rating required and interest higher than

Alternative financing sources (Question #1)
§  Retained earnings:
“Self-dependence à generate confidence that places the business in a sound financial position”
“No interest to pay à cost savings”

- Shareholders could argue for the misuse of profit and
danger of over capitalization if the company retains profit for its business.
Remark: Replaces bridge loan or bond issue!


Alternative financing sources (Question #1)
§  Rights issue:
“Approach to raise capital consists of offering the “right” to existing shareholders to buy additional share directly from the company within a fixed time period.”

+ Allows the firm to quickly raise capital without taking on debt.

+ Price is generally at a discount to the current market price à no pricing à faster process.


Typically used by trouble company when they are unable to
borrow more money.

Alternative financing sources of a bridge loan
(Question #1)



Bridge loan
or bond

Letter of

Could lose

No bridge

Bridge loan

Bill of

Vodafone has...
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