The Lebara crisis can still kill the Northern European bond market dream

GLOBALCAPITAL INTERNATIONAL LIMITED, a company

incorporated in England and Wales (company number 15236213),

having its registered office at 4 Bouverie Street, London, UK, EC4Y 8AX

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

The Lebara crisis can still kill the Northern European bond market dream

Winter clock

If the Norwegian bond market’s light touch approach to documentation means investors lose out, the Nordic aspiration to become the venue of choice for Northern Europe's high yield issuers may never materialise.

Why would telecoms company Vieo assume it could skip the release of the group’s financial reports and give only those of its subsidiary Lebara Mobile, instead?

The omission has caused trouble. It has to hand group accounts to investors, or it will breach covenants of its only bond, a €350m five year non-call three senior secured bond floating rate note printed in August to fund the acquisition of Lebara Mobile and its subsidiaries — and Yokara Global Trademarks and Yokara Trademarks — by Palmarium, a private family office based in Luzern, Switzerland.

On Sunday, Vieo said it had been “a genuine mistake” that it missed the necessary reporting on Monday, February 26. 

It promised to disclose the group’s accounts within the 20 day remedy period.

But this mistake has meant investors haven't been able to see the accounts of two loss-making subsidiaries, Lebara Digital and Lebara Media. Investors considered this omission a major mistake, since the pair have helped reduce Lebara Group’s Ebitda to just €2m in 2016.

Vieo said the loss-making subsidiaries are less so now, and in any case, they will be sold or closed by March 2019, an operation included in the documentation as "permitted reorganisation". 

It tried to reassure investors stating that Lebara Mobile’s cash flows can cover all costs, and Palmarium is "prepared” to buy those subsidiaries and “bear the burden” of whatever losses or profits they generate.

But investors seem unconvinced. Vieo bonds are trading at below 70 from around par just a week and a half ago.

Market participants are already asking to what extent this mistake was caused by the light touch regulation of the Nordic bond market, with a listing on the Oslo Stock Exchange. This requires a simpler documentation template, with limited disclosure of risk factors and reduced legal due diligence.

It had to be Lebara bondholders themselves who “brought to the issuer’s attention” the failure to submit the appropriate reports, rather than deal counterparties or the trustee, according to an update from Vieo on Sunday.

But scandals like this may end up hurting the growth of Nordic-listed high yield. 

Only a few weeks ago, on January 23, a Belgian borrower, software company SecureLink, listed its debut bond on the Oslo Stock Exchange. 

Nordic bankers argued that it was proof that the Nordic market could enjoy a wider appeal.

“The Nordic market has opened strongly in January, and we expect healthy demand, and further development throughout 2018,” said one at the time. “We are working to develop the Nordic bond market into a Northern European bond market.”

The hard work is worthwhile — but Lebara's case shows there's still some way to go. A good place to start would be a public, open discussion of what went wrong here.

Gift this article