Merrill Lynch seals $350M fund-raising deal

The first stage of the deal will involve arranging Poland's first international corporate debt issues to the tune of $100 million, which will be underwritten by Merrill Lynch. The five-year issue will be privately placed internationally in the first quarter of 1996.
"This is probably the debt market transaction of the year," said Stefan Dorfmeister, vice-president in charge of debt capital markets in Central and Eastern Europe for Merrill Lynch. "It really opens up the market for other blue chips looking to issue."
The entire $350 million financing package is for a three-year modernization and expansion project aimed at strengthening the refinery's position before the market is opened up in 1997 under European Union association agreements. Poland is currently trying to renegotiate an extension of this deadline.
"These actions will bring us closer to our main goal, which is to make Rafineria Gdanska one of the most competitive refineries in Europe, and will remain standing strong on the Polish oil products market, soon to be opened up," said Wlodzimierz Dyrka, president of the refinery's management board.
In bidding for the deal, Merrill Lynch had to win out over some tough competition, with a short list comprised of Citibank, ING Bank, SBC Warburg, JP Morgan and CS First Boston. "If you look at the shortlist of banks, it could have been Microsoft they were going after," Dorfmeister said. "Everyone wanted to get this piece of business."
The deciding factor was the price, and although Dorfmeister said it was too soon to announce anything, he did say that the "oiling cost to the refinery will be very attractive." Other investment bankers have estimated that the pricing could be around 200 - 250 basis points over U.S. Treasuries. Poland's debut $250 million Eurobond issue, lead managed by JP Morgan, achieved a fairly tight spread of 185 basis points over treasuries, and has since tightened.
Since Poland's return to the international debt market with the Eurobond issue in late June, talk of corporate issuers following has been high. Poland's most well-respected bank, Bank Handlowy, for example, is also planning to raise funds abroad through a bond issue, although only speculation exists as to when.
Dorfmeister said that Merrill Lynch, as part of their expansion into the region, has targeted 20-30 blue chip companies with whom they would like to develop long-term relationships. The requirements were strong cash flow, low indebtedness, skilled workforce and good management.
Details on raising the remaining $250 million in required investment for the refinery will be determined depending on market conditions and related costs of capital.