A replacement was selected for investors – Newspaper Kommersant No. 240 (7441) dated 12/26/2022

Management companies (MCs) are actively reorienting Eurobond funds to domestic infrastructure, including replacement bonds and yuan bonds in mutual funds. This makes it possible to eliminate the infrastructure risks inherent in Eurobonds of Russian and foreign issuers, which are serviced in international depository and clearing systems. Market participants note the growing interest in such assets against the background of the rapid depreciation of the ruble and rising rates in the world.

At the end of last week, Otkritie Management Company began to form a new open mutual fund Otkritie – Russian Eurobonds. “The fund will buy government and corporate bonds of Russian companies traded on the Moscow Exchange and denominated in various currencies in the target form,” said Evgeny Gorbunov, head of the department for products, marketing and technology at Otkritie Management Company.

Eurobond funds are not unique for the Russian market; at the beginning of the year, 15 such mutual funds were available to investors. However, against the backdrop of sanctions, Euroclear and Clearstream blocked the accounts of NSD, which made it impossible for Russian holders of Eurobonds and other foreign securities held in their accounts with the depositary to make transactions. As a result, most of the funds of this type were blocked.

The uniqueness of the new fund is that it will include only replaceable bonds of Russian issuers issued instead of Eurobonds, on which payments to Russian investors do not go through, as well as securities denominated in yuan. Since July, nine issuers have issued 14 yuan-denominated bonds totaling more than CNY 45 billion. During the same period, eight companies made 22 replacement bond offerings worth approximately $8 billion.

Substitute bonds may be of interest to local investors not only because of minimal infrastructure risks, but also because of their yields and currency exposure, believes Evgeny Zhornist, portfolio manager at Alfa Capital Management Company. As Mikhail Kuzin, investment director at BCS Mir Investments, noted, now this is the most liquid segment of the debt market with a yield in foreign currency of 6-8%. In recent weeks, interest in such securities has increased against the backdrop of a rapid depreciation of the ruble, which has fallen by almost 10 rubles since the beginning of December to 70.2 rubles/$. “There are still investors on the market who are committed to investing in foreign exchange assets, albeit less than before,” notes Konstantin Kirpichev.

A number of management companies already have strategies focused on substituted bonds. In particular, the press service of Pervaya Management Company spoke about the availability of such a strategy for qualified investors. “In the near future, we plan to launch two new currency instruments with exposure to the yuan,” they noted. They do not exclude the launch of a strategy for substituted bonds in Alfa Capital.

In general, managers intend to reorient old funds to such investments if they can be removed from the blocking. The probability of this increased after last week Luxembourg’s Ministry of Finance allowed to unfreeze frozen assets on NSD’s accounts (see Kommersant of December 20).

Mikhail Kuzin says that a few weeks ago, when liquidity appeared on the market and the opportunity to evaluate the relevant papers, they resumed operations with the Russian Eurobonds fund, with new funds that go there investing in replacement bonds. Ivan Lavrinenko, investment director at RB Capital, said that the company plans to open a previously blocked Eurobond fund for shareholders, reorienting its investment policy towards papers within the perimeter of NSD. “The strategy can be implemented in any operating fund for currency bonds, where the rules provide for the purchase of local securities,” notes Evgeny Zhornist.

Funds for yuan bonds are planned to be launched in the management company “Pervaya” and the management company “Ingosstrakh-Investments”. “This is the only instrument, with the exception of replacement bonds, that does not create infrastructure risks for the client,” said Artem Mayorov, director of the asset management department at Ingosstrakh Investments. As they gain direct access to the markets of friendly countries, the companies will create instruments for the assets of these countries. But, according to Yevgeny Zhornist, funds with yuan securities are less interesting than those with replacement bonds, since the yield on yuan bonds is quite low – 3.2-5.4% per annum.

Vitaly Gaidaev