Belgian TSO issues EUR1 billion bonds to finance acquisition of stake in German TSO

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Elia System Operator, a transmission system operator (TSO) in Belgium, has announced the successful launch of a EUR300 million (US$350.6 million) 10-year senior bond and EUR700 million (US$818.1 million) perpetual hybrid bond to finance the acquisition of a 20% stake in Eurogrid International SCRL.

The acquisition of the stake in Eurogrid, which is the holding company of the German TSO 50Hertz Transmission GmbH, executed in April 2018, was temporarily financed by Elia via a bridge loan. The proceeds of the bond issue will be used to refinance this bridge loan.

The EUR300 million senior bond matures in 2028 and has an annual coupon of 1.50%. The EUR700 million hybrid bond has a first call date in December 2023 and a coupon of 2.75%, with a reset every five years thereafter.

The hybrid bond is structured as perpetual instrument, has junior ranking to all the senior debt and will be recorded as equity in the Elia’s accounts (with coupons recorded as dividends) pursuant to International Financial Reporting Standards. It has received an instrument rating of BBB from S&P and will also receive an intermediate 50% equity content from S&P.

Elia's announcement states that investors showed great interest in the bonds, with book building completed in just a few hours due to high demand and the bonds were significantly oversubscribed.

Bank of America Merill Lynch and BNP Paribas acted both as global coordinators and joint bookrunners on these transactions with ING Bank and NatWest Markets Plc acting as joint bookrunners.

Elia acquired the 20% stake in Eurogrid from IFM Investors, an Australian investment management company. IFM first negotiated the sale with State Grid Corporation of China (SGCC), but as 60% shareholder, Elia chose to exercise its pre-emption right and acquire the stake itself.

Following the close of this transaction, SGCC attempted to acquire IFM's remaining 20% stake in Eurogrid, but this was again blocked by Elia. The TSO agreed to acquire the stake from IFM and then immediately sell it to German state-owned bank Kreditanstalt für Wiederaufbau (KfW) at the same financial conditions. 

This agreement reflects the German government's growing opposition to Chinese state-sponsored investments in strategic industries - Eurogrid subsidiary 50Hertz is one of only four high-voltage power network operators in Germany.