A dozen issuers are ready to place replacement bonds worth $5–7 billion in the near future
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Over two years, one and a half dozen Russian issuers have placed replacement bonds for more than $21 billion. Taking into account the extension of the period for issuing such securities (until mid-2024), another dozen corporate issuers are expected to place $5–7 billion in the near future. In the previous year, the yield of replacement bonds has been steadily declining, but by now this potential has almost been exhausted.
According to Kommersant’s estimates, in 2023 there were 51 placements (33 issues taking into account additional placements) of replacement bonds (SB) with a total volume of $13.5 billion. This is 1.8 times more than the 2022 figure. Moreover, if two years ago only six issuers issued replacement bonds, then last year their number doubled, and financial organizations showed activity – Alfa Bank (replaced ruble Eurobonds), Sovcombank, Tinkoff Bank and State Transport Leasing Company.
As in the previous year, the bulk of issues (over 70%) are bonds denominated in dollars. Along with issues in euros and pounds sterling, which were also replaced in 2022, bonds denominated in Swiss francs and rubles were replaced last year. On average, the replacement rate over two years amounted to 54% of the nominal volume of Eurobonds. The highest share of substitution was in ruble securities and several dollar issues, in which the figure reached 82–84%. This may indicate a high share of local holders of securities with storage in Russian depositories.
At the same time, the activity of issuers turned out to be insufficient to complete the process of replacing Eurobonds within the original time frame established in the presidential decree (January 1, 2024). In December 2023, by decree of the head of state, the period for replacing Eurobonds was extended for another six months. The delay in the process of replacing Eurobonds with local bonds is due to the fact that many borrowers expected to easily obtain permission from the government commission not to replace their Eurobonds, Deputy Finance Minister Alexey Moiseev said in an interview with Interfax. “However, the commission’s tough position on this issue has reduced the possibility of exceptions to a minimum, and Eurobonds are being replaced even by those who initially categorically did not want to do so,” the official noted.
To date, only three issuers have received permission from the legal commission – Severstal, Uralkali and VEB. So far, almost two dozen issues of replacement bonds have been announced for this year by nine issuers with a nominal value of over $9 billion. “Based on the average “replacement rate” for 2023 of 50–55%, currency bonds with a nominal value of $5–7 billion will probably be placed,” — Alexey Bulgakov, head of debt market analytics at Renaissance Capital, estimates.
Such issuers as Polyus, ALROSA, DME (Domodedovo Airport), Alfa-Bank (in relation to foreign currency Eurobonds) have not yet made a decision on the issue. The Polyus and ALROSA companies did not answer Kommersant’s questions. The DME Group said it has decided to issue replacement bonds and is currently finalizing the documentation required for their issuance with the arranger banks. “In accordance with the adopted schedule, the DME group plans to issue replacement bonds at the end of the first – beginning of the second quarter of 2024,” the company noted. “We did not conduct surveys among the holders of our Eurobonds, taking into account this fact, as well as taking into account the maturities of all existing issues much later than the end of 2024, we have no reason to apply to the government commission for permission not to replace our Eurobonds,” said the managing director on attracting Alfa Bank capital markets Yulia Kolesova.
At the same time, as the process of replacing Eurobonds is completed, rates in this segment are gradually decreasing, market participants indicate. During 2023, yields on first-tier issues decreased from 8–10% to 5–7% per annum. “A further reduction in interest rates on POs is, in principle, possible, since the mass Russian investor has few options for investments denominated in dollars and euros, but his potential is quite limited. Below current levels, there is already competition from an alternative instrument for protection against devaluation – yuan bonds,” notes Dmitry Nikonov, head of the investment analysis department of Sovcombank.
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