In January 2004 three workers were killed and 22 injured in an accident at Bulgarian iron and steel company Kremikovtzi; in 2005 a Sofia court declared the firm insolvent; in 2006 it successfully issued A300 million of bonds. Despite a portfolio of problems ranging from inherited bad debts to unpaid taxes and poor reporting, Kremikovtzi issued the Reg S notes to a total of 47 investors attracted by the 12% coupon and accompanying equity warrants.
Merrill Lynch acted as sole bookrunner and lead manager for the deal. Adel Kambar, director of debt capital markets origination at the firm, thinks that a broad range of emerging markets companies could employ similarly structured deals to finance themselves. “This transaction caught the imagination,” he says, “and allowed investors to participate in a turnaround story. I would be surprised if the deal was exactly replicated – it was specifically tailored to Kremikovtzi’s situation – but structured deals of this kind allow companies that have not been able to access the capital markets to do so. These are targeted at sophisticated investors able to do their own analysis, without the need of a credit rating.”
Investors, of course, have to do their homework before subscribing to a bond from a company with such a lively past.