Croatia’s €1.85 Billion Retail Bond Issuance

Out of the total €1.85 billion issuance, approximately €1.35 billion was allocated to retail investors while €500 million was allocated to institutional investors, according to the firm.

Miskovic & Miskovic advised with a team comprising partners Pavo Miskovic and Iva Miskovic as well as lawyers Hana Fiala and Vanda Frcko.

Lawyer Monthly had the pleasure to speak with Pavo Miskovic at Miskovic & Miskovic to give us some further insight into this transaction:

Can you tell us more about the role you played in advising on this bond issuance?

We were mandated by the joint agents and our task was not only to provide legal assistance to joint agents, but to act as transactional legal advisor – meaning that our role was to draft the structure of the transaction and all transactional and contractual documentation. This means we supported all involved parties aside from the joint agents, including the issuer (Republic of Croatia), the co-arranger, Zagreb Stock Exchange, Central depository and clearing company, etc.

With bond issuances of particularly large size, what are the most important factors to grasp?

It was not only the size that mattered, but the fact that this was a first-of-a-kind bond issued in Croatia where the primary focus was on retail investors. The bond had to be structured as a mass market product. Therefore, from a legal perspective, we had to cover plenty of areas related to individuals (apart from GDPR and AML topics) and had to provide all sets of legal analysis under which decisions on targeted retail investors could be made, as well as decisions relating to the subscription process (i.e. adults, minors, foreigners, power of attorneys, branch specifics, etc.).

In addition, the six largest local banks were involved as they opened all their branches in Croatia (more than 550) for retail investors to be able to subscribe for this bond covering all areas of Croatia.

Looking backwards, this was not ordinary legal advisory on bond issuance. Due to the specifics, it was actually a structuring of the new product.

Did you encounter any challenges in your work on this operation? If so, how did you overcome them?

Deadlines were extremely challenging – bearing in mind that this was Croatia’s first ever (state) bond focused on the mass market and a few months were expected for the transaction, yet we had only a few weeks. We managed to deliver everything needed in this strict timeline due to the fact we have a great internal team that is fully focused, motivated and committed to success. Of course, both the joint agents and the issuer were fully dedicated to this transaction, so late night and weekend conference calls were not uncommon.

In addition, it was challenging to advise the six largest local banks simultaneously, with each bank having their own set of internal procedures regarding GDPR, AML  and branch organisation from a retail perspective. We had to anticipate and mitigate every potential legal risk which could occur during the period of subscription for the retail investors, which lasted seven days.

We managed to deliver everything needed in this strict timeline due to the fact we have a great internal team that is fully focused, motivated and committed to success.

In the end, the fact that more than 45.000 retail investors subscribed to bonds in 550 branches within one week, and that no single legal or other risk occurred, is proof we all did great job in structuring this transaction and execution of it. On top of this, before subscription started, the targeted amount was €1 billion, so the fact that the total nominal issued amount was 85% higher once more confirms this was a great success story.

What are the implications for the wider Croatian economy?

There are several positive impacts, not only from the financial perspective. First of all, the Croatian capital market is not fully developed and we all truly believe this bond issuance and listing at Zagreb Stock Exchange will also educate the mass market on the capital market transaction.

Second, from the investor’s perspective, retail investors used this opportunity to invest and get larger returns (3.65% p.a.) compared what the banks offered on the deposits at that point in time (below 0.5% p.a.). At the end, the state itself has found a new source of funding – its citizens. According to the data of the Croatian National Bank, this source is full of money – more than €30 billion is sitting in deposits at the local banks.

Institutional investors took the opportunity as well, since €500 million out of the €1.85 billion issuance was allocated to them – although their ask was doubled as it was allocated to institutional investors.

It is reasonable to expect that the state will once again issue this kind of bond in the mid-term period.

Do you typically advise on this kind of matters?

Our law firm was established in 2018, under the enthusiasm of the founders and their specific background and impressive careers. We are focused on providing exceptional service and support, always going the extra mile. That is way, in our work so far, we have been engaged by the most prominent banks in Croatia for the most complex transactions, such as this one. For instance, last year we advised the six largest local banks in a €240 million loan to the company 100% owned by the city of Zagreb, capital of Croatia, but we have also been engaged as legal advisors in several capital market transactions, especially in the bond issuance process.

So, I guess we can say that we have a strong presence in banking and finance and capital market transactions in Croatia. But this is not the only thing we do – we have a great team which is dedicated in the field of M&A, and we are also fully focused on new industries, such as IT, where most prominent Croatian start-ups have entrusted us as their legal and strategic advisors. In the end, our word is our bond and we will deliver no matter the circumstances.