CEZ Distribution calls again an EGM to vote on EUR 116m EBRD financing (NEUTRAL)

CEZ Distribution called an EGM on 27 October’16, where the shareholders would vote on authorizing the Management Board to sign a loan agreement with EBRD for a total value of EUR 116m. The financing would be provided by EBRD directly and by SG Express Bank and BNP Paribas, indirectly through EBRD. The financing would be split in 2 parts – a 7-year term loan for up to EUR 98m, which would be used for financing of the investment program of CEZ Distribution and for acquisition of energy facilities and a 3+2+2 years revolving credit facility for up to EUR 18m, which would be used for working capital needs. The interest rate of the former would be a 6-month EURIBOR plus 1.35% and of the latter would be 6-month EURIBOR plus 1.60%. Some of the main terms of the agreement are: no collateral would be established, no dividends will be declared without EBRD’s prior consent, CEZ Distribution would not change its capital without EBRD’s prior consent, etc. The main part of the term loan would be used for acquisition of energy facilities which is a mandatory obligation for CEZ Distribution. The company estimates the total value of these acquisitions at EUR 144m for the 5-year regulatory period started in July 2015. The acquisition of the energy facilities is associated with increasing revenue from new connections, which is likely to have a positive effect on the profitability. Recall that this is the second time CEZ Distribution calls an EGM for approving the financing. The previous meeting was scheduled for 8 September. FSC banned the voting as shareholder’s approval is not required according to the Public Offering of Securities Act. The management, however, called an EGM again in order to avoid any doubt due to the materiality of the obligations under the loan agreement as well as due to the undertaking by the Company of specific obligations under this transaction which are a prerogative of the General Meeting of Shareholders.