CEZ plans to issue domestic bonds at CZK 10bn which will be used to finance buyback of shares. CEZ board of directors also decided to establish Eurobond program (medium term notes) in total value of EUR 4bn, in fall 2007 CEZ plans to issue the first tranche of Eurobonds. Both issues have to be approved by the supervisory board.
We see this news as positive as it would improve CEZ capital structure. Factoring total volume of bond issue (CZK 10bn + EUR 4bn) we estimate that increased weight of debt should lower WACC by approx. 50 bps, which would according to our sensitivity analysis increase fair value by approx. CZK 100. New capital structure would increase D/E ratio from 20% in 2006 to 40%-45% in medium term (3-4 years).