OREANDA-NEWS. October 17, 2012. To secure an additional source of funding for the Latvenergo Group's long-term capital investment programme, as well as make a major step towards enhancing the company's image, recognition and competitive performance, the Group is planning to issue public bonds as part of its borrowing programme by the end of this year, reported the press-centre of SEB Banka.

If the situation on capital markets is favourable, Latvenergo plans to conduct a public issue of bonds* in Latvian lats as well as Euros later this year. The bonds will be listed on the NASDAQ OMX Baltic exchange's list of bonds. The total nominal value of the securities issue is expected to reach 50 million Latvian lats or an equivalent in Euros. The bonds will not be convertible, meaning that Latvenergo is and will remain a fully owned state company. Based on the results of a poll conducted by Latvenergo, the issue of bonds has been entrusted to SEB Group.

"The decision to enter the capital market will be a test of the company's stability and maturity. Bonds are released to the market if potential investors are convinced about the issuer's stability, recognition and competitive edge. Latvenergo's growth has achieved this high level of prestige, so we are secure in the knowledge that investors will show interest for Latvenergo bonds," notes Aris Zigurs, Latvenergo AS Management Board Chairman.

The funding attracted by issuing bonds will be directed towards the Latvenergo Group's projects to invest in generation, distribution and transmission network assets. Whereas so far, Latvenergo has attracted supplementary funding for its long-term capital investment programmes, a decision to attract financing by issuing bonds will allow the power company to draw on additional sources of funding on favourable provisions, to diversify its portfolio of borrowers, and increase its recognition among investors, facilitating the attraction of funding in the coming years.

Zane Kotane, Latvenergo AS Management Board member: "Public issue of securities means that exchange-traded Latvenergo bonds will be available to any individual or legal entity resident in Latvia. Moreover, Latvian pension funds and investors from other European countries might express interest for our bonds as well."

To convince potential investors about the transparency of the Latvenergo Group's operations and its ability to provide adequate information, Latvenergo is planning to create a section on its website dedicated to investor relations before the issue of bonds, regularly publishing the latest information on the group's financials and major events.

"This issue of bonds is a considerable step towards improving the Group's management and ensuring transparency," adds Zane Kotane, Management Board member at Latvenergo AS, "Whereas before the Latvenergo Group would publish its financial statements once a year, after the issue of bonds it will publish statements on a quarterly basis. Thus, the general public will be able to study Latvenergo group operations by receiving quality information about the group's operations and management principles, in compliance with principles of good corporate governance."

The issue of obligations is a globally accepted practice in the power industry. Bonds have been issued by Estonian Partner Company 'Eesti Energia', Lithuanian electricity supply companies, as well as other large power companies in Europe. The government of Latvia has also been issuing bonds for a long time.

NASDAQ OMX Baltic Exchange Division Manager Daiga Auzina-Melalksne states: "There will always be great investor demand for bonds. Investors in the Baltics as well as in the Nordic countries have been actively purchasing government and corporate bonds traded on the Baltic exchange. In the first seven months of this year, investors purchased bonds and debentures for a total of 555 million Latvian lats. It is particularly important that quoting Latvenergo bonds on our exchange will allow pension funds in Latvia, which have access to capital of nearly a billion lats, to invest in companies crucial to the development of Latvia's economy alongside private investors. By starting to quote Latvenergo bonds, the company will be regularly disclosing its financials as well as other essential information, markedly increasing the company's recognition among local and foreign investors alike, creating a reputation among investors and thereby boosting Latvenergo's competitive performance and advantages during attraction of future investment."

Ainars Ozols, president of SEB Banka AS: "The SEB Group appreciates the fact that one of Latvia's leading companies is leading by example in diversifying its sources of financing. In line with best growth and development practice, Latvenergo has been the only company in the past few years to opt for corporate bonds to attract funds."

The Latvenergo Group's capital investment in 2011 constituted 198 million Latvian lats. Similar figures are expected in upcoming years. The largest projects currently being implemented by the Latvenergo Group are the second stage of reconstructing Riga TEC-2, the Kurzeme Ring transmission system construction project, and important programmes in the distribution network system aimed at ensuring high-quality, secure and reliable service to our customers. Latvenergo funds implementation of these capital investment programmes in part with funds of its own and in part using borrowed capital.

* Bond: a long-term (more than 1 year) debt security issued by a commercial company, which specifies key lending provisions. By issuing a bond, the issuer promises the bondholder to periodically pay a coupon (interest) and to repay the full value of the bond at a specific later date, which is referred to as the maturity date.

Bonds allow an issuer to finance long-term investment using external resources. Issue of bonds may be compared to a bank loan – the company lends money which must be repaid with specific interest after a certain period of time; however, in this case, the lender is not the bank but investors.

The difference between two key types of securities – stocks and bonds – is this: stockholders also become the co-owners of the issuer's company, whereas bondholders are essentially lenders. Another difference is that a bond has a specific maturity date when the bond is repaid by repaying the principal, whereas stocks are termless.