Baltic securities markets are predominantly driven by equity, not debt. However, a number of companies have successfully used debt instruments, such as bonds, to raise capital from the public to finance their projects.
In the Baltics, bonds can be offered to the market through either public or private placement. The offering is considered public except if the bonds are offered:
l Only to professional investors (e.g. credit institutions, investment companies);
l Up to certain number of previously determined persons (in Estonia and Lithuania 's up to 100 persons, in Latvia 's up to 50 persons);
l With a total price of up to 40,000 euros for one offering;
l For acquisition individually, or as a pool, for at least 40,000 euros per investor.
The vast majority of bonds are offered through private placement due to lower costs and speedier procedures compared to a public one. With public offerings, the regulations regarding bond issue are very detailed, which makes it cumbersome for the issuer. For example, a prospectus must generally be registered with local securities market supervisory institution (e.g., the Financial Supervision Authority in Estonia) before a public announcement of the bond issue. The offering must be announced in a nationwide newspaper, and the prospectus must be made public at the latest on the same day. Usually the law provides even tougher requirements for foreign issuers regarding documents and information to be submitted to the supervisory authority.
If the issuer plans to conduct several bond emissions, an issue of program securities should be considered. Program securities are term securities issued by a company under a long-term securities program on the basis of terms and conditions provided in the program. Several issues can be conducted on the basis of single documentation, thereby speeding up the process and reducing costs.
Generally, bonds in the Baltic countries are registered with the local depository (e.g., the Latvian Central Depository). A company issuing bonds is obliged to register them if the law requires registration of offering prospectus with the regulatory body. At the same time, private placement debt securities can also be registered with central depositories voluntarily to facilitate their credibility and transferability. In order to transfer registered bonds, both seller and buyer must have securities accounts in a local commercial bank.
If the issuer wishes to list the bonds on a stock exchange, more detailed rules apply. For example, bonds to be listed on the Tallinn Stock Exchange must be registered at the Estonian Central Register of Securities or in other similar register or database, which guarantees equivalent performance of securities transactions. Only freely transferable bonds can be listed.
The nominal value of bonds listed on Tallinn Stock Exchange must be at least 200,000 euros. The nominal value can be determined either in Estonian kroons or in euros. The listing fee at Tallinn Stock Exchange is 10,000 kroons (approximately 640 euros).
In the Baltic countries, trading with bonds is still not very active, as the bonds are generally short-term commercial papers. However, there are no considerable legal factors that would hinder companies from raising funds through bond issues in the Baltics. o
Rosa Rotko is an associate at Sorainen Law Offices in Tallinn
