Investing in bonds
Risks relating to the security
Risk factors
By investing in financial instruments, investors expect to make a profit, but every investment also carries certain risks that may significantly affect the profit or loss an investor realises. Before making an investment decision, every investor should inform themselves carefully and study all available information on the relevant risks.
The risks set out below represent the minimum information that prospective investors should take into account when deciding whether to invest in the Bonds. The risks set out below are the most significant risks inherent to Koykan. They do not cover additional risks that were not known to Koykan, or that Koykan, in its reasonable judgement, does not consider material, but which could materially or adversely affect Koykan’s business, its financial position and its results of operations.
Prospective investors are advised to consider carefully all of the risks set out here. Before deciding whether to invest in Koykan’s Bonds, however, it is essential that they make their own assessment of Koykan’s financial position, its potential and the risks associated with Koykan.
The basic rights of Bondholders are the right to payment of the principal at final maturity of the Bonds and the right to a voluntary option to exchange them for stakes in the Koykan Group where clearly defined conditions are met. There are no restrictions on the free transferability of the Bonds.
A) Risks relating to the issuer
In its day-to-day business and activities, Koykan is exposed to a number of financial risks, in particular credit risk, interest rate risk, currency risk, liquidity risk and price risk.
Credit risk
Refinancing and maturity profile risk
Credit risk is the risk that a debtor will fail to meet its obligations, that is, the possibility that funds advanced will not be repaid on time or in full, or will not be repaid on the planned schedule. Koykan’s ability to service its debt on schedule may be adversely affected by a fall in revenue caused by fewer guests or the closure of locations, a rise in operating costs (wages, rent, raw materials), delays in opening new locations that are expected to generate revenue, and unexpected one-off expenses. Koykan does not guarantee the safety of the investment or the return of funds placed beyond its own business position and success. Koykan does not guarantee a return on the securities issued.
Mitigation: Active monitoring of key financial indicators on a quarterly basis (DSCR, revenue per location, EBITDA); diversification of revenue across 9 locations in 4 European countries, which reduces dependence on any single location or market; conservative management of working capital and a cash buffer; an internal escalation protocol that sets out specific management measures if the financial position deteriorates, including postponing new investments and activating reserve sources of funding. Koykan does not guarantee the safety of the investment or the return of funds placed beyond its own business position and success.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as high.
Several issues mature within a relatively short period immediately before the planned maturity of this issue. Because those earlier issues mature before this one, this issue is in practical terms (de facto) subordinated to the earlier issues as regards the availability of funds for repayment.
Overview of active issues: PLGR-O-268A – EUR 612,000, maturing 11 August 2026; PLGR-O-283A – EUR 500,000, maturing 2 March 2028; PLGR-O-284A – EUR 939,000, maturing 29 April 2028; PLGR-O-284K – EUR 906,000, maturing 29 April 2028; PLGR-O-288A – EUR 932,000, maturing 5 August 2028; PLGR-O-28BA – EUR 878,000, maturing 16 November 2028; PLGR-O-291A – EUR 949,000, maturing 27 January 2029.
More details on each individual issue can be found at /investor-relations/#tablica.
Link to the page containing information on all issues: /investor-relations/
Mitigation: The Issuer plans to service its obligations under the maturing issues through a combination of the following: (i) growing operating cash flow of the Group, which increases as new locations open; (ii) refinancing through new debt issues, subject to market conditions and investor demand; (iii) the option to convert convertible bonds into business shares, which reduces the amount of cash repayment; (iv) in the long term, the planned establishment of an alternative investment fund (AIF) through the Koykan Capital & Expansion platform; the fund has not yet been established and until it is, it does not reduce this risk. The Issuer notes that these instruments do not eliminate the risk but seek to reduce it: the Issuer’s ability to meet its obligations at maturity depends on the achievement of its business projections and the availability of capital in the market.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as high.
Risk of no protective provisions (no right to early repayment)
The terms of the issue contain no provisions on events of default or on a right of holders to early repayment. Holders have no contractual right to demand early repayment of the principal if the Issuer’s financial position deteriorates, other than under mandatory law (for example in insolvency proceedings).
Mitigation: the documentation provides no formal mitigation; holders exercise their rights under the general rules of the Civil Obligations Act (default interest, enforcement through the courts). See Part E and Part F (f).
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as high.
Currency risk
Currency risk is the risk that a currency will be worth less (or more) in the market in the future. It arises from fluctuations in the exchange rates between the euro and the US dollar, the euro and the Swiss franc, and any other currencies Koykan may hold. Koykan operates mostly in euros. If part of the business is conducted in a foreign currency, Koykan will buy foreign currency for those costs. Koykan will not take any speculative positions in foreign currencies.
All obligations under these bonds, namely the nominal amount, the coupons and the repayment of principal, are denominated and payable in EUR, so an investor resident in the eurozone has no currency risk in relation to the security itself. For an investor whose reference currency is not the euro, the return also depends on movements in the exchange rate of that currency against the euro. At the level of the Issuer’s business there is limited exchange rate exposure, because part of the Group’s revenue and costs arises outside the eurozone (CZK and others). That exposure may indirectly affect the Issuer’s cash flows and therefore its ability to service its obligations under the bond.
Mitigation: More than 94% of the Group’s revenue and costs are denominated in EUR. Croatia has been in the eurozone since 1 January 2023; the currency of the Czech Republic moves relatively closely with the euro, which limits the Issuer’s exchange rate exposure.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as low.
Issuer's liquidity risk
Liquidity risk is Koykan’s temporary inability, at a given moment, to secure sufficient available cash to meet current obligations as they fall due, regardless of the Company’s long-term solvency. Unlike credit risk, which concerns the structural ability to service debt, liquidity risk arises when the timing of cash inflows and outflows is not aligned, for example when a coupon falls due before operating revenue reaches the account.
Mitigation: Koykan regularly prepares cash flow projections on a monthly, quarterly, annual and multi-year basis in order to forecast liquidity needs and to match the maturities of financial assets and financial liabilities. Koykan will manage this risk by maintaining adequate reserves, by constantly monitoring forecast and actual cash flows, and by comparing the maturities of financial assets and liabilities.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as high.
Risk of change in ownership structure and financial instability
The risk of a change in ownership structure is the possibility that a change in the ownership structure could significantly change Koykan’s business. If Koykan considers it possible to raise new funds through a share capital increase or by seeking a strategic partner, the ownership structure may change.
Mitigation: The floor valuation for the conversion of bonds is EUR 6,250,000, which protects against dilution on terms that undervalue the company; conversion is subject to clearly defined thresholds (a minimum of EUR 5,000, or EUR 50,000 for development issues) and time conditions; Series A is planned as a minority stake, and the founders retain management control through shares carrying a voting majority and anti-dilution mechanisms; all bond conversions and capital rounds are subject to a decision of the management board and the members’ meeting; the management board informs bondholders in good time of material changes in the ownership structure.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
Counterparty risk
A significant part of the business activity that Koykan plans to carry out will be entrusted to third parties specialising in specific activities. Koykan cannot guarantee that third parties will fulfil all of their obligations to Koykan fully and satisfactorily. Koykan cannot guarantee that the work it plans to contract to third parties will be carried out at the currently budgeted prices.
Mitigation: Contractual safeguards with key partners (penalties, notice periods, substitution clauses); diversification of the supplier base in key raw material categories so that the loss of one supplier does not endanger operations; regular assessment of the reliability and financial standing of key partners.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as elevated.
Franchise risk
The Koykan Group is at an early stage in building its franchise ecosystem. The risk relates to the potential failure of franchise partners to meet their contractual obligations, or failure to comply with the brand’s operating standards.
Mitigation: Detailed selection of partners against financial, operational and reputational criteria before contracts are signed; a formal franchise agreement with clearly defined opening obligations, quality standards and termination mechanisms; a Franchise Playbook with detailed standard operating procedures (SOPs); planned quarterly monitoring of the performance and compliance of each franchise partner.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
B) Risks relating to the sector
Macroeconomic risk
Macroeconomic risk relates to the economic situation in a country, price stability, geopolitical stability and the general movement of the business cycle in an economy. It also includes the risk of exogenous shocks to which a small open economy such as Croatia may be exposed. An economic slowdown, rising prices of raw materials, energy and labour, and a fall in disposable consumer spending may reduce the Issuer’s turnover and margins and, with them, its ability to pay coupons and principal on time. Investors should bear in mind that this risk may result in delayed or missed payments under the bonds.
Mitigation: Negotiating terms with suppliers to control costs; presence in stable EU economies (HR, CZ, SK, DE). The Issuer cannot guarantee demand or the resilience of the sector; any shift by consumers to cheaper forms of food is neither guaranteed nor a measurable effect, and is therefore not cited as mitigation.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as medium.
Concentration risk
Concentration risk is the risk arising from any single, direct or indirect, exposure to one person, a group of connected persons or a central counterparty, or from a set of exposures linked by common risk factors such as the same economic sector or geographic area, or similar activities or commodities. Koykan is highly exposed to this form of risk given the concentration of its business in the QSR sector.
Mitigation: Geographic diversification of the business across 4 markets (HR, CZ, SK, DE) reduces exposure to trends specific to one market; presence in shopping centres of a number of different operators reduces dependence on a single landlord; the QSR segment shows structural resilience in economic recessions because consumers move from a much more expensive hospitality segment to more affordable formats.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as high.
Raw material price risk
The success of the business is directly tied to the prices of raw materials and food products. Rising prices can squeeze margins and adversely affect profitability and the ability to service debt. At the same time, the ability to pass cost increases on to selling prices is limited by the price sensitivity of QSR guests: an excessive rise in selling prices can cause a fall in turnover and a loss of competitiveness.
Mitigation: Optimisation of the supply chain and supplier contracts that secure price stability in the short term; diversification of suppliers in key categories so that the loss of one supplier does not result in a sharp rise in costs; monitoring of price trends and timely adjustments to menus and portion sizes as a way of protecting margins without raising prices directly.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as high.
Regulatory risk and risk of changes in tax legislation
The risk of changes in tax and other legislation is a significant risk for prospective investors in Koykan’s Bonds. It is the probability that legislators will change tax and other rules in a way that adversely affects Koykan’s profitability. The tax system of the Republic of Croatia is subject to frequent change, not only in tax rates but also in what is taxed, and other rules have also changed, mainly to align with European Union law. Frequent changes to tax legislation may weaken Koykan’s financial position and jeopardise further investment and business plans. Koykan can manage the risk of changes in tax and other legislation only to a very limited extent.
Mitigation: All markets operate under the EU legal framework; legal review on entry into each market; alignment of Croatian legislation with EU rules.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as medium.
Political risk
Political risk covers all risks that could affect the political stability of a country. It relates above all to changes in those holding political power, and in their views on managing the economy. The political situation in a country is of great importance to its economy. Given the current state of domestic and foreign policy relations, the Republic of Croatia is a stable parliamentary democracy and a member of the European Union, NATO and the Schengen Area. As part of the European Union, the Republic of Croatia applies European standards, norms and guidelines, and its legislation is aligned with that of the European Union. Since 1 January 2023 the Republic of Croatia has used the euro as its national currency. The stability of the Government of the Republic of Croatia and its programme can materially affect the position of business entities, positively or negatively. In a broader sense, political risk relates to: legal risk, regulatory risk, the risk that the state fails to meet its obligations to creditors and other financial obligations, and the risk of political violence, which includes the risk of strikes, violent protests, unrest, sabotage, terrorism, civil war and revolution.
Mitigation: HR, CZ, SK and DE are stable EU and NATO members with harmonised legislation.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as low.
C) Risks relating to the securities
Market risk
Market risk is the risk of a change in the market value of an individual security. Because of changes in market prices, investors must be aware that if they wish to sell the bonds at the market price, that price may differ significantly from the nominal value of the funds they invested. The risk exists where a bond is sold before maturity.
Mitigation: Registration of all bonds with the Central Depository & Clearing Company (SKDD) ensures standardised record-keeping and the possibility of bilateral transfer; regular investor communication and transparent half-yearly reporting reduce selling pressure; investors who have invested at least EUR 5,000 have access to a voluntary option to exchange their bonds for stakes, as an alternative exit that does not require finding a buyer on the secondary market. Please note that the Issuer cannot guarantee the market price of the bond or the availability of a buyer on the secondary market.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
Risk of early redemption (call) of the bonds
Koykan has the right to call the bonds. A call means early repayment, in part or in full, of the principal of the bond. If the bonds are called, the investor receives the principal back but loses the future coupon income that the investor expected up to the planned maturity.
Mitigation: The Issuer may carry out an early call only on prior written notice to holders given at least 30 days before the call date; if the bonds are called, the investor receives back the full nominal amount of the funds invested, with no penalty on the principal; the Issuer undertakes not to use the call as a means of avoiding payment of obligations that have fallen due, but only where its financial position has improved or where it can refinance on more favourable terms.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as medium.
Risk of amendment to the terms of the bonds
The terms of these Bonds may be amended only with the express written consent of each individual holder. Without such consent, the Issuer has no right unilaterally to change the interest rate, the maturity date or the nominal amount of the Bonds. This does not affect the Issuer’s right of early call. Investors should be aware that any amendment to the terms made with holders’ consent could adversely affect the rights of holders who did not vote in favour of the amendment or were unable to take part in the process.
Mitigation: Holders are protected by the requirement for the express written consent of each individual holder for any change to the key terms: the interest rate, the maturity date and the nominal amount; each holder receives timely written notice of the proposed amendment, with sufficient time to reach a decision; holders who do not consent to an amendment retain their rights under the original terms of the issue or are offered early repurchase at nominal value.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as high.
Fixed interest rate risk
An investor in a fixed-rate bond is exposed to the risk that the price of the bond will fall as a result of changes in market interest rates. If the market interest rate rises, the price of a fixed-rate bond typically falls until the yield on that bond is approximately equal to the market interest rate. If the market interest rate falls, the price of a fixed-rate bond typically rises until the yield on that bond is approximately equal to the market interest rate.
Mitigation: The fixed interest rate protects the company from rising financing costs. The investor receives a known coupon until maturity, with no change in the amount.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as low.
Inflation risk
Inflation risk is the change in the purchasing power of the currency in which the Bond is denominated, which changes the real value of the Bond. If the rate of inflation exceeds the nominal return on the investment in the Bonds, the real return on the investment in the Bonds is negative.
Mitigation: The interest rate of 7.5% per annum was chosen to give investors a real return in conditions of moderate inflation; the short maturity (3 years from issue) shortens the period of exposure to inflation risk compared with longer-term instruments. The Issuer notes that it cannot guarantee a real return or influence the movement of the inflation rate: the investor bears the risk that inflation exceeds the nominal coupon.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
Risk relating to the option to exchange for stakes
These bonds are not convertible, and they give the investor no right to exchange them for business shares or other equity instruments of the Issuer or of affiliated companies.
Notwithstanding this, the Issuer intends, during the life of the bonds, to offer existing bondholders a voluntary option to exchange their bonds for stakes in the Koykan Group, with the right to participate envisaged for investors who have invested at least EUR 5,000. Such an option is a separate business decision of the Issuer and does not form part of the rights arising from these bonds.
The option is intended to allow existing investors to participate in the planned ownership restructuring of the Koykan Group, the preparation and implementation of which are under way. The terms of the exchange, including the exchange ratio, the method of determining value and other relevant terms, will be set out in separate documentation if and when such an offer is made.
An investor is not obliged to accept an exchange offer. If the investor does not accept it, the investor remains a bondholder with all the rights arising from the terms of the issue, including the right to payment of interest and repayment of the principal at maturity. If the investor accepts the offer and becomes a co-owner, the value and rights of the stake acquired will depend on the terms of the exchange, the valuation determined and future changes in the ownership structure, including possible dilution of the stake.
Mitigation: The exchange is a voluntary option, not an obligation of the investor, and is not a feature of the bond itself. Before any exchange offer, the Issuer will provide the investor in good time with the terms of the exchange and the reference value.
Note: Even with the terms provided, the exchange does not guarantee a particular value of the stake acquired or protection against dilution, so the investor bears the risk of the value of the stake that would be acquired through the exchange.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
Risk relating to the taxation of income from the bonds
At the time of writing this document, coupon interest is not taxable. Capital gains tax applies where bonds are sold at a price higher than the purchase price, if the sale takes place less than two years after the bonds were purchased. There is a risk that the rules described above, which are currently highly favourable to bond purchasers, will change. Koykan cannot influence Croatian tax legislation in any way. Payment of interest on the Bond is not subject to the calculation and payment of value added tax.
Income that an investor receives from these bonds may be subject to tax in accordance with the rules in force at the time the income is received. The tax treatment depends on the tax status and residence of each individual investor and on any international treaties on the avoidance of double taxation. Tax rules and their interpretation may change, including with effect during the life of the investment, which may reduce the investor’s net return.
Note: The Issuer does not provide tax advice and does not guarantee any particular tax treatment. Every investor is advised, before investing, to seek advice from their own tax adviser on the tax consequences of acquiring, holding and disposing of these bonds and of any exchange option.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as medium.
Financing an investment in bonds with borrowed funds
Financing an investment in bonds with a loan, credit or margin loan can significantly increase the investor’s risk. If an investor finances the investment in bonds with borrowed funds, the investor must, when calculating the return on the investment, or the loss if the market price of the bond falls significantly, also take into account the cost of repaying the loan or credit. Because these bonds are not listed on a regulated market and have no organised secondary price, the valuation of the bonds as collateral depends on the lender’s assessment, which may result in a margin call and a forced sale regardless of the Issuer’s actual financial position. Investors must not assume that they will repay the loan or credit solely from the income they expect from the bonds acquired with borrowed funds. Instead, investors should assess their own financial position carefully before investing, so as to establish whether they would be able to pay interest and repay the principal of the loan or credit, and whether they could also bear losses on the investment in bonds instead of making a profit. With a margin loan, the bonds are pledged to the lender, and if the price falls sharply there is a risk that the investor will have to sell all or part of the bonds in order to meet a margin call, that is, to repay the loan.
Mitigation: The Issuer recommends investing only from one’s own free funds, without the use of financial leverage. An investor considering financing with borrowed funds should first consult a financial adviser and include in the calculation the financing costs, and the scenario of a partial or total loss of the investment and of being unable to sell the bond on the secondary market.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as high.
Transaction costs and fees on secondary trading
Transaction costs may arise when the bonds are traded on the secondary market. These costs may reduce or entirely eliminate the potential to profit from trading in bonds. Transaction costs most often take the form of a fixed fee for transactions of lower value or a variable fee (expressed as a percentage) for transactions of higher value. Besides the costs directly connected with entering into secondary trading transactions (direct costs), investors should also take into account certain costs that may arise after a transaction has been concluded (such as bond custody costs, the cost of maintaining a transaction account, notarial costs and the like). Investors should familiarise themselves with all costs connected with concluding and settling bond transactions before making an investment decision.
Mitigation: This risk arises only where a bond is transferred on the secondary market before maturity. Investors who hold the bond to maturity do not bear the transaction costs of secondary trading. The Issuer recommends that, before any secondary transfer, investors inform themselves of all applicable fees charged by SKDD and by the intermediary carrying out the transfer.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
D) Risks relating to the offer
Liquidity risk of the issue
The capital market in the Republic of Croatia is still insufficiently developed. No organised secondary market is available for these bonds, so an investor should plan to hold the bond to maturity. Investors should be aware that they may not be able to sell their bond easily, or to sell it at the price they want. The Issuer does not currently plan to list the bonds on a regulated market or on an MTF, but reserves the right to decide on this later during the life of the bonds; listing is not guaranteed, and investors should not rely on the existence of a secondary market when investing.
Mitigation: Transfer is possible only by bilateral transfer through SKDD, with the investor finding the counterparty independently. A holding period to maturity is recommended.
The probability of the risk materialising is assessed as high, and the adverse impact on the Issuer as high.
E) Other risks
Operational and project risk
Operational risk covers the risks connected with the day-to-day management of restaurants and the successful execution of business operations. Koykan is exposed to the risk of operational disruption, which may arise from staffing instability, supply chain problems, IT system failures, failure to meet hygiene standards or errors in the management of individual locations. As the network grows across more countries and new locations open, operational complexity increases significantly, which raises the likelihood of operational deviations.
Mitigation: The PMO framework standardises all processes for opening new locations, from architecture to the first day of trading; unified POS and ERP (Odoo) systems ensure consistency of operations and financial reporting across all locations and markets; standard operating procedures (SOPs) define every aspect of restaurant operations regardless of location or employee; diversification of revenue across 9 locations in 4 European countries reduces operational dependence on any individual location.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
Expansion and project risk
The risk of delays in opening new locations or of budget overruns. Any delay in opening, or overrun of planned costs, may adversely affect planned revenue and the ability to service debt.
Mitigation: A standardised buildout process under the PMO framework ensures predictable timelines and costs for opening each new location; experience gained from 8+ openings in 4 European countries is applied directly to each new opening through documented processes and checks; a CAPEX reserve of 10–15% is built into every buildout budget as protection against unforeseen costs; an active pipeline of at least 3 locations under negotiation at any one time provides a time buffer that reduces pressure if a particular location is delayed.
The probability of the risk materialising is assessed as medium, and the adverse impact on the Issuer as medium.
Reputational risk
Negative reviews, media coverage or incidents at locations may affect the Group’s brand and revenue and, indirectly, its ability to service its obligations.
Mitigation: Continuous monitoring of NPS and online reviews (Google, TripAdvisor) at the level of each individual location, with the aim of spotting negative trends early; brand standards and standard operating procedures (SOPs) are mandatory for all corporate locations and franchise partners, which ensures a consistent guest experience; regular internal checks of hygiene and food quality reduce the risk of food incidents; a crisis communications protocol sets out responsibilities, channels and response times in the event of negative media coverage or incidents; transparent half-yearly reporting to investors builds trust and reduces reputational risk towards the capital market.
The probability of the risk materialising is assessed as low, and the adverse impact on the Issuer as medium.
You can find more information in the document: Information Document