Issuance of Municipal Bonds And Conditions of Their Admission To Bratislava Stock Exchange

Transcription

1 BURZA CENNÝCH PAPIEROV V BRATISLAVE BRATISLAVA STOCK EXCHANGE Issuance of Municipal Bonds And Conditions of Their Admission To Bratislava Stock Exchange April 2010

2 List of used abbreviations BSSE Bratislava Stock Exchange NBS National Bank of Slovakia CDCP Central Securities Depository of the Slovak Republic VUC Upper-tier territorial unit (a regional municipality, vyšší územný celok in Slovak) The Securities Act - Act No 566/2001 (Coll.) on Securities and Investment Services and on Amendments and Supplements to Related Laws as amended by later legislation The Stock Exchange Act Act No 429/2002 (Coll.) on the Stock Exchange as amended by later legislation The Bonds Act Act No 530/1990 (Coll.) on Bonds as amended by later legislation The Municipal Act Act No 369/1990 (Coll.) on Municipal Establishment as amended by later legislation

3 Contents INTRODUCTION... 1 I. Objective of a municipal-bond issue... 2 II. THE PROCESS OF ISSUANCE OF A MUNICIPAL-BOND ISSUE Legislation Stages of issuance of a municipal-bond issue Publication of the terms of issue Subscription of securities... 6 III. DUTIES OF A MANAGER OF A MUNICIPAL-BOND ISSUE... 6 IV. PROSPECTUS OF SECURITY (optional) Particulars of the prospectus of security Approval of the prospectus of security Fees associated with approval of the prospectus Publication of the prospectus of security Announcement of the prospectus publication Validity of the prospectus of security...9 V. REGISTRATION OF BONDS AT THE CDCP Issuance of a securities issue...10 VI. Admission of bonds to the BSSE Admission of municipal bonds to the BSSE Conditions for municipal bonds admission to a relevant BSSE market Application for municipal bonds admission to the Stock Exchange markets Fees for admission of municipal bonds to the BSSE...15 VII. RATING OF BONDS (optional)...15 VIII. OVERVIEW OF FEES ASSOCIATED WITH ISSUANCE OF MUNICIPAL BONDS...15 Overview of municipal bonds traded on the BSSE since List of BSSE members...19 Glossary...20

4 Inttroducttiion Issuance of municipal bonds and conditions of their admission to Bratislava Stock Exchange The continuing financial crisis notwithstanding, the capital market has not stopped existing. It continues to function as a place for the government, bigger or smaller enterprises, banks, and municipalities to look for long-term resources of financing of their further development and, for investors, to find options where to place their available financial means. What has changed, however, is the perception of risk associated with investments on the capital market, which plays in favour of traditional, tested, efficient and safe financial instruments. There is no doubt such instruments comprise bonds issued by the government, corporations, banks as well as municipalities. Municipal bands are not somewhere on the periphery of investors focus. On the contrary, due to their relatively low level of risk of being unredeemed, they are in most cases ranked immediately after government bonds. This suits investors that seek to avoid risk and prefer securities with a high probability of redemption. It is therefore appropriate to stress that municipal bonds are not only a suitable alternative for financing of communal needs and projects, but also an important investment tool which the municipalities or regional selfgovernments can use in a much greater extent in order to eliminate the disadvantages of other forms of financing of their development. Success in the issuance of municipal bonds can give a substantial boost to an issuer s rating. When issuing municipal bonds, however, it is necessary to closely co-operate with an experienced manager of securities issues who will advise on what issue - and under what conditions - can be placed on the market at a given point in time. The purpose of this booklet is to provide an overview of basic information on the current status and procedure of issuance of municipal bonds, as well as on the issuer s requirements and obligations in the process starting with the decision to issue and ending with the commencement of trading on a public market. We believe that this booklet will help overcome concerns about a municipality s entry into the capital market, and that it will facilitate orientation in the processes connected with the issuance of municipal bonds. 1

5 I.. Objjecttiive off a muniiciipall--bond iisssue By means of a bond issue and via the capital market, an issuer addresses investors who are willing to put their financial means into the issuer s securities. A municipality can subsequently use such resources to fund its activities. Bonds are most often bought by institutional investors (i.e. banks, investment companies, insurance companies). In the case of lower nominal values, however, a substantial volume of the issued issue can be placed among small investors, in particular directly among the inhabitants of the municipality or VUC. Depending on current market conditions, it is essential that the issuance of a municipalbond issue has good timing and that its appropriate characteristics are determined. Such characteristics include in the first place the volume of bonds to be issued, the nominal value, the date when nominal value is due, the type of interest rate and the periodicity of dates when yields are due. It is usually necessary to support an issue, by way of marketing, so that the entire issue is successfully subscribed and there is no need for the issuer to additionally consider further alternatives of acquisition of necessary resources. Decisions concerning the use of funds acquired from a municipal-bond issue are made by the issuer, who will state them in the terms of issue. The objective of a municipal-bond issue is to acquire resources for communal projects or, respectively, for debt restructuring. It is common practice to use such resources for investment projects as well as to cover the momentary operating needs as follows: purchase of movable and immovable assets for the municipality; housing construction; transport infrastructure construction; water supply and sewer system construction; gas system installation; construction of sewer collectors; construction of sewage treatment plants; construction of communal waste disposal sites; construction of incinerator plants; construction of heat sources and distribution systems; reconstruction of communal buildings; reconstruction of public squares; modernisation of historical buildings and objects; construction and reconstruction of schools and associated facilities; construction of cable TV distribution systems; realisation of projects intended to support development of rural tourism. A municipal-bond issue represents a viable alternative for funding of communal projects and directly involves the inhabitants in development of the municipality or VUC. By making its bonds publicly negotiable, the municipality makes itself visible also among specialised investors thus creating more favourable conditions for the issuance of further issues in the future. It is essential to consider particular conditions for each issue on an individual basis, in relation to the municipality s or VUC s financial situation, market conditions and purpose for which the acquired resources will be used. The interest rate of municipal bonds can directly copy market conditions by being tied to a floating interest rate and specifying a shorter interval for its calculation. It is also possible to gradually redeem parts of a given issue and, if allowed by the terms of issue, redeem the entire issue of municipal bonds prior 2

6 to its maturity date. The level of interest rate usually correlates with the issue s rating, provided that the issuer has given such information to the issue manager and investors. When compared with a bank loan, bonds have advantages in a usually lower price, diversification of the sources of financing, a possibility to acquire a great amount of financial means at one point in time, a longer period of maturity and, under certain circumstances, a higher level of prestige and publicity. Disadvantages include standardisation of this financial instrument, worse optional adaptation to a fluctuating cash flow (a municipality obtains all financial means at the start, and pays them all back in the end) and generally lower flexibility (bank loans are usually better customised to a debtor s needs). III.. The processs off iissuance off a muniiciipall--bond iisssue 1. Legislation The conditions of bonds issuance are stipulated by the Act on Securities and Investment Services, the Stock Exchange Act and the Act on Bonds. In compliance with 11 Section 4 Subsection b) of the Act on Municipal Establishment, an issue of municipal bonds is approved by the municipal board, which will decide on the total volume of bonds to be issued. A municipality can perform activities associated with the issuance of bonds at own expense, or it can authorise a securities dealer/a bank that is entitled to perform such activities on the basis of a licence to perform investment services, granted by the NBS. A securities dealer/a bank can not only carry out the function of issue arranger, but also provide professional consulting at all stages of the issuance of municipal bonds. Municipalities issue bonds directed at a broad range of investors, i.e. both individual and institutional investors. The conditions of their issuance, including the cost of acquisition of disposable resources in the form of a municipal-bond issue, depend on various factors. Such factors include primarily market conditions, demand for municipal bonds on the investors side, budgetary projections and outlooks of the issuer, location and importance of the municipality, rating and, most of all, the issuer s ability to redeem municipal bonds. Specific conditions of a municipal-bond issue are therefore determined subsequently, after consultations with the issue manager, following the current market conditions in order to ensure subscription of the entire expected volume of municipal bonds Sttaaggeess oof f issssuuaanccee i oof f aa munni icci ipaal l--boonnd issssuuee i The following process of preparation and issuance of a municipal-bond issue assumes subsequent public trading of the municipal bonds on a Stock Exchange (secondary trading). Such secondary trading is conditional upon the realisation of a public offering of the municipal-bond issue to a wide range of investors, followed by their subsequent issuance and registration at the Central Securities Depository of the Slovak Republic (once the primary sale has been successfully concluded). 3

7 The entire process, starting with early considerations of capital acquisition possibilities and ending with the placement of issued municipal bonds on the Stock Exchange, can be divided into the following consecutive stages: Identifying funding needs: Every municipality has different funding needs which always depend on particular conditions and their assessment by the municipality s main economist. Selecting consultants (issue managers): Consultants needed for successful realisation of a public offer and managers of a securities issue being issued are selected by the issuer at the initial stage of the primary sale of securities when the volume of required resources is being determined, the ways of their acquisition are being considered and, last but not least, consultants able to successfully conclude the public offer of securities are being selected. In its decision-making, the issuer usually gets help from selected professionals be they external legal experts, tax advisors, auditors and securities dealers who will participate in operations connected with the offering of securities and their issuance. Consultations with consultants and preliminary evaluation: Co-operation with consultants in specifying the structure of issue, a time schedule of issuance, a marketing strategy etc. The city/municipality/vuc management s decision: After consultations with consultants, a preliminary evaluation of the issuer and a draft of what is known as an investment story, the issuer decides on submission of a proposal for a municipal-bond issue to the city/municipal board. Due diligence and internal evaluation of the issuer: Realisation of due diligence in relation to the issuer and its activities, in order to ensure exactness and completeness of all information contained in the prospectus of security. In addition, gaining all information necessary to correctly evaluate the municipal bonds being issued and set the parameters of the entire issue. The city/municipal/vuc board decides on the issuance of municipal bonds. Preparation of the prospectus of securities (optional stage): Collecting and compiling all information about the issuer and securities being issued; submitting the information in the form of a prospectus for approval to the National Bank of Slovakia. Securities issued by regional self-governments are not under the obligation to compile and submit the prospectus of municipal bonds for approval to the National Bank of Slovakia. Nevertheless, the issuer may decide to voluntarily compile the prospectus and submit it for approval to the NBS in order to make the bond issue more attractive and provide basic information to potential investors. Publishing the terms of issue and the approved prospectus of municipal bonds (if compiled): On the day when the prospectus of municipal bonds is published, their public offering starts and investors can subscribe them in compliance with the terms of issue. The primary sale of given municipal bonds i.e. the period when they can be acquired by first investors - lasts until the end of subscription. Once the primary sale is over, the issuer in cooperation with the securities issue manager ensures that they are issued and registered at the Central Securities Depository of the Slovak Republic. Submitting an application for municipal bonds admission to the Stock Exchange: If a sufficient volume of the municipal-bond issue being issued has been subscribed, their admission to the Stock Exchange is possible. Trading on the secondary market will start no sooner than on the day following the day of coming into effect of the decision on bonds admission to the Stock Exchange. Via the public offering, the issuer addresses the information about the offer of bonds usually to as-yet-unknown investors. As there are normally several comparable investment opportunities on the market at the same time, the issuer has to make every effort through publication of the terms of issue and the securities prospectus as well as various other 4

8 promotional marketing activities to provide investors with all necessary information and to present itself so as to convince the investors to decide to participate in subscription of the securities being issued. 3. Publication of the terms of issue By publishing the terms of issue, the issuer communicates to investors the basic characteristics of the municipal-bond issue being issued, among them being the period of duration of the primary sale, the issue size, the nominal value of the security, the issue price and the like. Terms of issue for municipal bonds If a municipality decides to issue municipal bonds based on a public call, it is obligated to publish the terms of issue which contain primarily the following information: a) Identification of the issuer, the name of the bond and its international securities identification number (ISIN), nominal value, the method of yield calculation and dates of its payment, the date when the bond s nominal value is due, the issuer s statement that it owes the bond s nominal value to the bondholder and the issuer s obligation to redeem the nominal value within a stipulated period as well as the obligation to pay the bond yield on stipulated dates, the manner of such payments and specification of payment venue; b) The highest sum of nominal values of the bonds being issued, and their issue price; c) The date of the start of bonds issuance, the expected duration of their issuance and the manner of issuance; d) The manner how financial means for repayment of the nominal value and for payment of yields will be secured; e) Information on whether an application for bonds admission to one of the Stock Exchange markets, and to which market, will be submitted; f) The conditions for redemption of the nominal value prior to maturity and for payment of an aliquot part of yields, provided that the issuer has reserved the option of premature redemption or that the issuer has pledged to repay the nominal value to the bondholder upon request and before the stipulated maturity period. The following are the most frequently used methods to determine the yield of a bond in the Slovak Republic: a) a fixed interest rate; b) a difference between the bond s nominal value and its lower issue price; c) a floating interest rate depending on the movement of interest rates on the financial market; d) a combination of the aforementioned methods. When issuing bonds, the issuer must publish the terms of issue in the nationwide periodicals publishing stock-exchange news no later than one week before the start of the issuance, and also in the Commercial Bulletin no later than 2 months after the start of the issuance. Changes in the terms of issue must be published by the issuer in the nationwide periodicals publishing stock-exchange news within 10 days from coming into effect of such changes. Within the same period, the issuer must also request for publication of such changes in the Commercial Bulletin. The issuer must not change the terms of issue of the already issued bonds, except for altering the issuer s identification and payment venue. Where it is not possible to specify the final price and the amount of offered securities, the issuer must 5

9 include criteria on which this information will be based or, in the case of price, a maximum price. As soon as this type of information is known, the issuer is required to report it to the NBS and publish it in the same manner as the prospectus of security. 4. Subscription of securities Once the terms of issue are published, the stage of the primary sale of securities begins. The length of duration of the primary sale is determined by the issuer or, respectively, by the issuer after consultations with the issue manager. The subscription period is usually from 1 to 6 months long. The terms of issue should include a clause specifying whether the primary sale is only deemed successful if the entire volume of the given issue has been subscribed, or whether the issuer will issue bonds even for a lower subscribed volume. If the entire volume of securities is subscribed before expiration of the period stipulated for their subscription, the primary sale ends. In order for securities to be successfully subscribed, it is recommended that a manager of securities issue be selected. It can be any securities dealer or a bank that has such activity included in the licence to provide investment services. We recommend selecting a suitable issue manager from among the BSSE members, who can help the issuer to introduce municipal bonds to the BSSE. IIII.. Duttiies off a manager off a muniiciipall--bond iisssue The success of a securities issue often depends on good timing of its issuance. Following the current conditions on the securities market, it is sometimes appropriate to delay an issue by several months and wait for more favourable conditions to occur. A careful preparation of every issue takes some time. It is desirable to support the introduction of bonds to the capital market with suitable marketing tools. In the issuance of a big issue of securities, in particular, it is suitable to co-operate with an experienced issue manager who will not only provide advice but also help to successfully sell out the entire issue. The issue manager can also participate as a guarantor for subscription of a part of/the entire issue, which means that the issue manager itself will buy a part of the issue (thus showing that it backs up the offer) and, if the planned amount is not entirely subscribed, the issue manager will buy out the remaining part of the securities issue. A securities dealer or a bank fulfils various irreplaceable tasks in the issuance of securities, in particular it: provides the issuer with basic advice on the possibilities of securities issuance; designs a suitable method of financing; performs due diligence; performs the issue manager s duties; participates in preparation of the prospectus and the terms of issue; publishes the terms of issue; publishes the prospectus; undertakes partial or full guarantees for subscription of the issue; establishes and manages the consortium of subscribers; sells off the issue; performs PR activities; registers the issue at the CDCP; introduces securities to the BSSE, including participation in an analytic interview with the BSSE s Committee for Listing of Securities; provides the support of price after the issue has been introduced to the Stock Exchange; 6

10 performs the manager s activities after admission of the issue to the BSSE: coupon payments, determining the interest rate, operations related to gradual downsizing of the issue volume or with redemption prior to maturity, redemption of securities and acts related to cancellation of bonds in the CDCP. IV.. Prospecttus off ssecuriitty ((opttiionall)) 1. Particulars of the prospectus of security As the issuance of municipal bonds is exempted from the obligation to compile and publish an approved prospectus of security (municipal bonds), the issuer may decide to voluntarily compile the prospectus according to 125h) Section 2 of the Securities Act. If this is the case, the issuer is required to compile and publish the prospectus of municipal bonds in the manner briefly described below. In compliance with 121 Section 11 of the Securities Act, the prospectus of security is prepared according to Commission Regulation No 809/2004/EC of 29 April 2004, implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements. The regulation in the Slovak language is publicly available on this website: The English version is available on the following website: A methodical document has been developed with regard to the issue of preparation of securities prospectuses. The document is named Particulars, as to the content, of the prospectus of security for execution of a public offering and admission of securities to trading on a regulated market, and is published on the NBS s website: The prospectus of security must contain well-arranged and understandable information in order for investors to be able to correctly assess the issuer, its assets and liabilities, financial situation, profit/loss, outlooks as well as entities that have undertaken guarantees for redemption of securities or for associated yields and rights. The prospectus must contain information about the issuer, information about securities which the public offering of securities refers to or which are to be admitted to trading on a regulated market, and a summary which will in a brief and generally understandable manner state the basic characteristic of the issuer, of the security and of the entity that has undertaken the guarantee for repayment of securities or for yields and associated risks. The prospectus can be prepared either as a single document or as a document comprising separate documents. A prospectus comprising separate documents is divided into a registration document, a description of securities and a summarisation document. 2. Approval of the prospectus of security The prospectus of security is approved by the National Bank of Slovakia (NBS), based on an application of the announcer of a public offering of securities or an entity seeking admission 7

11 of a security to trading on the Stock Exchange. The NBS will decide on approval of the prospectus, and will notify the applying entity of the decision within 10 working days (or, respectively, within 20 working days if the public offering of securities refers to securities issued by an issuer whose securities have not yet been admitted to trading on a regulated market and who has not publicly offered securities up to the day of submission of the application for approval of the prospectus) from submission of the draft prospectus. Not meeting the aforementioned deadlines is not deemed as approval of the prospectus. Any new important fact, factual error or inaccuracy with regard to information in the prospectus that might affect the correct evaluation of securities must be stated in a supplement to the prospectus. The NBS has a period of 7 working days to approve the supplement. 3. Fees associated with approval of the prospectus If the entity seeking approval of the prospectus is the issuer, in compliance with Entry No 4 of Section 2 of the NBS Provision of 6 May 2008 stipulating the level of fees for individual types of acts of the NBS, the fee for approval of a prospectus of bonds prepared as a single document is in the amount of The following are fees for approval of individual parts of a prospectus of bonds comprised of separate documents: Approval of the registration document ; Approval of the summarisation document ; Approval of the description of securities Approval of a supplement to the prospectus of bonds is subject to a fee of If the entity seeking approval of the prospectus is either the announcer of a public offering of bonds, who is not the issuer of securities that the public offering of securities refers to, or an entity seeking admission to trading on a regulated market, in compliance with Entry No 4 of the aforementioned Provision, the fee for approval of a prospectus of security prepared as a single document is in the amount of The following are fees for approval of individual parts of a prospectus of security comprised of separate documents: Approval of the registration document 66.39; Approval of the summarisation document 66.39; Approval of the description of securities Publication of the prospectus The issuer, the announcer of a public offering of securities or the entity seeking admission to trading on a regulated market is obligated to publish the prospectus at an appropriate time before the execution of the public offering of securities or before admission to trading on a regulated market; however, no later than on the day when the public offering of securities starts or on the day when trading of relevant securities starts on a regulated market. Publication of the prospectus shall mean: a) its publication in the nationwide daily press or its sufficient dissemination in the member states where the public offering of securities is being performed or where admission to trading on a regulated market is being sought, or b) making it accessible, in written form and free of charge, in the operating premises of the regulated market where the securities are being admitted to trading, or in the issuer s registered seat and in the operating premises of the financial institutions placing or selling the securities and in the operating premises of entities that are in 8

12 charge of redemption of the nominal value of securities/payment of yields from these securities, or c) making it accessible, in electronic form, on the issuer s website, on the websites of the financial institutions placing or selling the securities and on the website of entities that are in charge of redemption of the nominal value of securities/payment of yield from these securities, or d) making it accessible, in electronic form, on the website of the regulated market where admission to trading is being sought, or e) making it accessible, in electronic form, on the NBS s website provided that the NBS has decided to provide such a service. An issuer that has published the prospectus pursuant to Subsections a) or b) above is obligated to publish the prospectus also in the manner pursuant to Subsection c), provided that the public offering refers to securities in a total worth in excess of In cases pursuant to Subsections b) through e) above, the issuer/the announcer of a public offering/the entity seeking admission to trading on a regulated market is obligated to publish an Announcement of publication of the prospectus in the daily press with nationwide coverage or with sufficient dissemination in the member states where the public offering is being performed or where admission to trading on a regulated market is being sought, publication of the prospectus and the place where it can be obtained. The wording and format of the prospectus and its supplements, whether published or publicly accessible, must be identical with the wording of the prospectus approved by the NBS. 5. Announcement of the prospectus publication The announcement of publication of the prospectus shall contain the following information: 1. The issuer s identification data; 2. The type, class and quantity of securities that are to be offered and/or for which admission to trading is being sought; 3. A planned time schedule of the offering/admission to trading; 4. A statement that the prospectus has been published, specifying the place where it can be obtained; 5. If the prospectus has been published in printed form, the addresses where and periods during which its copies are available to the public; 6. If the prospectus has been published in electronic form, the addresses where investors can request a printed copy; 7. The date of the announcement (i.e. publication) of the prospectus. 6. Validity of the prospectus of security The prospectus of municipal bonds is valid for a period of 12 months from its first publication, provided that the obligation to update the prospectus with its supplements pursuant 125c) of the Act is met. In the case of a prospectus comprised of three parts, the registration document is valid for a period of 12 months from its publication, provided that the obligation to update it with supplements to the prospectus pursuant to 125c) of the Act is met. If the registration document is supplemented with an approved and published description of securities and a summarisation document, these documents make up the valid prospectus. 9

13 V.. Reegiissttrrattiion off bondss att tthe CDCP 1. Issuance of a securities issue According to the Act on Securities and Investment Services, the day on which the first acquirer of securities is registered as their owner in the securities register, maintained by the Central Securities Depository of the Slovak Republic, is deemed to be the date of issuance of the securities issue. The date of issuance of a securities issue shall be determined by the issuer. Registration of an issue of book-entry bonds shall mean the assignment of an ISIN and entry of issue data into the issuer s register. Registration of a bond issue at the CDCP runs in the following three stages: 1. The CDCP assigns ISINs in conformity with the Act, the ISO 6166 standard and its obligations as a member of the Association of National Numbering Agencies. Based on a delivered application ( Application for assignment/change of particulars/cancellation of an ISIN ) signed by persons authorised to act on the applicant s behalf (the issuer or a person authorised by the issuer), the CDCP assigns an ISIN to a securities issue. The application is available at in the Forms Section. The application can be sent by post, or delivered in person to the CDCP s mail room. If the application is filled out correctly and accompanied by required documents (either originals or officially authenticated photocopies) confirming the identity, existence, eligibility and manner of the applicant s actions in compliance with legal regulations in effect, the CDCP assigns an ISIN within 5 days from the fulfilment of all conditions for ISIN assignment. The issuer is then sent written information about the assignment of ISIN by post. 2. The issuer subsequently signs an agreement with the CDCP on registration of an issue of book-entry bonds. Agreement specimens can be obtained upon request via , by post or in person at the CDCP. The issuer shall enclose primarily the following annexes and documents with the agreement: - Basic information on the issue of book-entry bonds and their issuer; - entry in a securities owner s account or, respectively, the CDCP and the issuer conclude an Agreement on submission of instructions on technical data mediums; - a document evidencing the assignment of an ISIN from the central depository; - the municipal board s decision on the issuance of bond; - terms of issue and a document evidencing their publication in the periodical press with nationwide coverage publishing stock exchange news; - the mayor s certificate of election and a document evidencing the assignment of an IČO code to the municipality. 3. Based on an agreement with the issuer, the CDCP registers the bond issue in the issuer s register and credits bonds to the accounts of the owners. If the entry of bonds refers to 10 and fewer owners, the CDCP makes the entry based on information stated in documents annexes that are part of the agreement. If the entry refers to more then 10 owners, the CDCP makes the entry based on information submitted by the issuer on a technical data carrier (floppy disk, CD etc). 10

14 Fees associated with registration of a securities issue at the CDCP (based on the CDCP price list in effect from 1 April 2010) The following table displays the prices for ISIN assignment: Volume of a securities issue ( ) Price ( ) Up to and more Price range for registration of a municipal-bond issue: Volume of a securities issue ( ) Basic fee ( ) + percentage of issue volume Price ( ) at maximum volume Up to % From to % From to % From to % From to % From to % From to % and more % - The price from the table, for municipal-bond issues with a maturity period of: a) up to 12 months (including), will be multiplied by 0.2; b) 12 months to 24 months (including), will be multiplied by 0.4; c) 25 months to 36 months (including), will be multiplied by 0.6. As a maturity period is deemed the longest possible maturity period specified in the terms of issue. Gradual subscription and redemption prior to maturity are not taken into account during price calculations. The CDCP will provide a 50-percent discount of the price according to the preceding section (where maturity period is more than 36 months, the discount will be provided based on the above table), if the issuer pledges that the bond issue will be admitted to trading on the listed market of a Stock Exchange located in Slovakia (the Stock Exchange hereinafter) within 3 months from the registration date. If the condition according to the first sentence is not met, the issuer is required to pay an additional price equal to the discount provided. VII.. Admiissssi ioon off bondss tto tthee BSSE Many issuers will certainly ask why the securities they issue should be traded on the Stock Exchange, when the issuers have already acquired needed capital on the primary 11

15 market. Investors, however, usually buy securities on the primary market only when the issuer binds itself, in the terms of issue, to apply for admission of such securities to the Stock Exchange. This way the investors get a guarantee that they will have regular information about the issuer and, if need arises, they will be able to sell securities anytime. In addition, the fact that securities are traded on the Stock Exchange is for investors a guarantee of an objective market price. Advantages arising to issuers that place their securities on the BSSE: Creation of the current market price of securities, Higher liquidity in comparison with securities that are not publicly negotiable; Optional admission of bonds to the module of market makers, where their price is determined on a daily basis and the inability to clearly evaluate a security is nonexistent; Optional inclusion of a security in the stock-exchange indices of the capital market, thus increasing the issuer s prestige; A possibility to subscribe further securities more easily; Significantly lower marketing costs connected with the issuance of further issues of securities; Providing investors with information from one place, via the BSSE; Regular promotion of the issuer; Dissemination of information about issuers and their securities to both local and foreign press agencies (including trading reviews and daily/monthly/semiannul/annual statistics). Disadvantages arising to issuers that place their securities on the BSSE: Information duties must be met on a regular basis; Costs in the form of fees for placement of securities on the Stock Exchange. 90 Amounts of traded bonds II Government bonds Municipal bonds Mortgage bonds Bank bonds Corporate bonds 12

16 18 Market capitalisation of bonds traded on BSSE ( billion) II Market cap in billion 1. Admission of municipal bonds to the BSSE The BSSE organizes trading on two markets, with the market of listed securities being further divided into two segments as follows: Market of listed securities Main listed market BSSE Parallel listed market Regulated free market The main listed market is open only to those securities that meet the criteria for admission, which should be reflected in higher liquidity of securities and guarantee that, if need arises, an investor can anytime buy or sell securities admitted to trading on the listed market. In order for bonds to be admitted to the listed market, fulfilment of the following general conditions is required: Securities must be fungible; Their negotiability must not be limited; They must be in the book-entry form; The prospectus of security (if compiled) has been approved; The issue price has been fully repaid; Subscription of securities has been successfully concluded. Fulfilment of the above-mentioned general conditions is required also for admission of securities to the regulated free market. 13

17 Based on an issuer s or a Stock Exchange member s application, the BSSE will decide on admission of municipal bonds within 60 days from submission of the application or its supplement. 2. Conditions for municipal bonds admission to a relevant BSSE market The Rules for Securities Admission to Stock Exchange Markets stipulate the procedure for municipal bonds admission to the listed market and regulated free market, as well as the necessary requirements applying to the securities and their issuer. The complete wording of the Stock Exchange Rules of the BSSE is available on the Internet at: Conditions for admission of bonds to the main listed and parallel listed markets BONDS Main listed market Parallel listed market Period of business activity (years) 3 2 Issue volume ( ) Number of issue owners 10 - Positive economic result (years) Application for municipal bonds admission to the Stock Exchange markets Bonds are admitted to the relevant BSSE market on the basis of an application for bonds admission and an approved prospectus, provided that the issuer has decided not to use an exemption which says that securities issued by regional self-governments are exempt from the obligation to compile the prospectus of municipal bonds and submit it for approval to the National Bank of Slovakia. The application is submitted by the issuer or by a Stock Exchange member authorised by the issuer. Information in the application and prospectus must not be older than 3 months from the day of elaboration of the application. The application contains the issuer s identification data and material characteristics of bonds whose admission is to be decided upon. The application annexes comprise primarily the prospectus of bonds approved by the NBS, the NBS s decision concerning approval of the prospectus and financial statements for the relevant calendar periods. The complete requirements as to the content of the application are stipulated by the Stock Exchange Rules in Article 3 of the Rules for Bonds Admission, which are available on the Internet at: 14

18 4. Fees for admission of municipal bonds to the BSSE The issuer is obligated to pay a one-off stock exchange fee in the amount of for admission of a municipal bond to the relevant BSSE market. In addition to the admission fee, the issuer is required to pay annual stock exchange fees for placement of securities on the relevant market in compliance with the BSSE Fee Order as follows: for placement of securities on the regulated free market, for placement on the parallel listed market and for placement on the main listed market. BSSE fees Price ( ) One-off fee for admission to listed market Annual fee on main listed market Annual fee on parallel listed market Annual fee on regulated free market VIIII.. Ratti ing off bondss ((optti ionall)) Every municipal-bond issue admitted to the Stock Exchange market can have its own rating, which clearly indicates an opinion of an impartial professional rating agency on the issuer s ability to repay the obligations arising from the issue of municipal bonds and, subsequently, possible purchase of these bonds by specialised institutions. Rating is not required, however, in order to sell off an issue to small investors, and neither it is currently a requirement for admission of municipal bonds to trading on the BSSE. The activity of rating agencies on the Slovak market is monitored by the National Bank of Slovakia, which maintains a List of renowned rating agencies. Information on the rating agencies included on this list can be found on the Internet at: VIIIII.. Overviiew off ffees asssociiatted wiitth iisssuance off muniiciipall bonds Securities dealers apply various fee rates to services connected with consulting on the issuance of securities. An issuer may perform many of the below-mentioned services at own cost, however, if the issuer is not experienced in issuance of securities, it will expose itself to a risk of securities not being subscribed in the expected volume. It is quite likely that competing securities dealers will not charge some of the below-listed fees. It is therefore necessary to agree upon details as to the extent and level of paid services with the relevant securities dealer, or to choose a securities dealer whose price offer for the issuance and placement of an issue is the most favourable to the issuer. If an issuer has qualified specialists in its staff, costs related to legal consulting as well as the fees for preparation of the prospectus of security can be saved if the issuer decides to compile it. In the same manner the issuer can also ensure, at own cost, the payment of yields from the securities it has issued. It must be stressed, however, that if the issuer is 15

19 not sufficiently experienced in these activities and does not have specialist personnel for particular areas available, it is essential to contact one of securities dealers. This is done in order to meet a single criterion the one of successful issuance of a securities issue through which the issuer will acquire financial resources necessary for further development, and will reinforce its position in the competitive environment. It is not desirable to strive to minimise expenses at all cost, if it might jeopardise the successful issuance of a securities issue. 16

20 Ovveervvi iew off muniici ipall boondss ttraaded oon Brrattiissllavaa Sttoock Excchanggee ssi incee tthe yyeearr ŽILINA DETVA KOŠICE BREZNO PEZINOK KREMNICA Žilina séria 01 SK ,000,000 Sk Issue: Maturity: Detva SK ,000,000 Sk Issue: Maturity: Nominal: Sk Košice séria 01 SK ,000,000 Sk Issue: Maturity: Brezno séria 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Pezinok séria 01 SK ,000,000 Sk Issue: Maturity: Kremnica séria 01 SK ,000,000 Sk Issue: Maturity: KOŠICE PÚCHOV PREŠOV KOMÁRNO RUŽOMBEROK REVÚCA Košice séria 02 SK ,000,000 Sk Issue: Maturity: Púchov séria 01 SK ,000,000 Sk Issue: Maturity: Prešov séria 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Komárno séria 01 SK ,000,000 Sk Issue: Maturity: Ružomberok séria 01 SK ,000,000 Sk Issue: Maturity: Revúca séria 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk SVIDNÍK KEŽMAROK RAJEC ROŽŇAVA RIMAVSKÁ SOBOTA VEĽKÉ KAPUŠANY Svidník séria 01 SK ,000,000 Sk Issue: Maturity: Kežmarok séria 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Rajec séria 01 SK ,000,000 Sk Issue: Maturity: Rožňava séria 01 SK ,000,000 Sk Issue: Maturity: Rimavská Sobota 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Veľké Kapušany 01 SK ,000,000 Sk Issue: Maturity: DOLNÝ KUBÍN PREŠOV GELNICA NOVÉ ZÁMKY ZVOLEN ŽILINA Dolný Kubín séria 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Prešov 2 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Gelnica séria 01 SK ,000,000 Sk Issue: Maturity: Nové Zámky SK ,000,000 Sk Issue: Maturity: Nominal: Sk Zvolen séria 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Žilina II SK ,000,000 Sk Issue: Maturity: Nominal: Sk 17

21 ŽILINA NITRA BANSKÁ BYSTRICA BANSKÁ BYSTRICA TRENĆÍN DUBNICA NAD VÁHOM Žilina III SK ,000,000 Sk Issue: Maturity: Nominal: Sk Nitra séria 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Banská Bystrica 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Banská Bystrica 02 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Trenčín 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Dubnica nad Váhom SK ,000,000 Sk Issue: Maturity: Nominal: Sk VEĽKÝ KRTÍŠ DETVA VRÁBLE TRNAVA BANSKÁ BYSTRICA KOŠICE Veľký Krtíš 01 SK ,000,000 Sk Issue: Maturity: Nominal: Sk Detva II SK ,000,000 Sk Issue: Maturity: Nominal: Sk Mesto Vráble SK ,000,000 Sk Issue: Maturity: Nominal: Sk Mesto Trnava SK ,000,000 Sk Issue: Maturity: Nominal: Sk Banská Bystrica 03 SK ,000,000 Sk Issue: Maturity: Nominal: Sk MESTO KOŠICE 3. SK ,880,000 Sk Issue: Maturity: Nominal: Sk P E Z I N O K Ž I L I N A MESTO PEZINOK II. SK ,000,000 Sk Issue: Maturity: Nominal: Sk Žilina IV SK ,000,000 Sk Issue: Maturity: Nominal: Sk 18

22 List of BSSE members CAPITAL INVEST, o.c.p., a.s. Poľná č. 1, Bratislava Tel.: 02/ , Fax: 02/ Československá obchodná banka, a.s., Michalská 18, Bratislava 1 Tel.: 02/ , 02/ Fax: 02/ , 02/ Dexia banka Slovensko a.s. Hodžova 11, Žilina Tel.: 041/ , , Fax: 041/ , ING Bank N.V. (Holandsko) Amstelveenseweg 500, 1081KL Amsterdam, Holandské kráľovstvo prostredníctvom pobočky ING BANK N.V., pobočka zahraničnej banky Jesenského 4/C, P.O.Box 123, Bratislava 1 Tel.: 02/ Fax: 02/ J&T BANKA, a.s., pobočka zahraničnej banky Lamačská cesta 3, Bratislava 4 Tel.: 02/ Fax: 02/ OTP Banka Slovensko, a.s. Štúrova 5, Bratislava 1 Tel.: 02/ , Fax: 02/ PALČO BROKERS o.c.p., a.s. Panenská 13, Bratislava Tel.: 02/ Fax: 02/ Patria Finance, a.s. Jungmannova 24, Praha 1, Česká republika Tel.: (00 420) Fax: (00420) RM-S Market, o.c.p., a.s. Nám. SNP 14, P.O. Box 127, Bratislava 1 Tel.: 02/ Fax: 02/ SEVISBROKERS FINANCE o.c.p., a.s. Kuzmányho 8, Žilina Tel.: 041/ , , , Fax: 041/ Slovenská sporiteľňa, a.s. sídlo: Tomášikova 48, Bratislava Tel.: 02/ Sporotel : , , Fax: 02/ Sympatia Financie, o.c.p., a.s. Trnavská cesta 50, Bratislava Tel.: 02/ Fax: 02/ Tatra banka, a.s. Hodžovo nám. 3 - P.O.Box 50, Bratislava Tel.: 02/ Dialog: 02/ , 02/ , , Fax.: 02/ UniCredit Bank Slovakia a.s. Šancová 1/A, Bratislava Tel.: 02/ , Fax: 02/ VOLKSBANK Slovakia, a.s. Vysoká 9 P. O. Box 81, Bratislava 1 Tel.: 02/ , , Fax: 02/ Všeobecná úverová banka, a.s. Mlynské nivy 1 P. O. Box 90, Bratislava 25 Tel.: 02/ , , Fax: 02/ Poštová banka, a.s. Prievozská ul. 2/B, Bratislava Tel.: 02/ , Fax: 02/