Competition between investment banks and investment companies for the placement of risky bonds is intensifying

In the high-yield bonds (HYB) segment, competition between large investment banks and small investment companies is intensifying. Against the backdrop of a record placement of such bonds in 2023 (RUB 57 billion), investment banks occupied almost 60% of this market. Moreover, they placed issuers with higher ratings first. Investment companies are moving into a riskier segment, but the margins are higher. In addition, against the background of the expected reduction in the key rate, the spread between the yield of VDO and risk-free bonds will widen, which also increases the attractiveness of the segment for investment companies.

The revival in the market for high-yield bonds (with a credit rating of BBB and below or without a rating) has significantly revived interest in it from large investment banks. According to a study by Ivolga Capital, VDO issuers raised a record 56.5 billion rubles in the primary market, which is more than five times higher than the result of 2022 and almost 30% higher than the result of 2021. At the same time, 95 issuers began placing bonds and offered investors 142 new issues.

According to Ivolga Capital, investment banks (Gazprombank, Alfa Bank, Sovcombank and others) accounted for 59% of the primary VDO market last year. Analysts note that the issues organized by large banks cover the entire rating spectrum of the segment – from B to BBB. “In the BBB segment, competition has become greater than in the BB segment,” they note. Large investment banks are interested in any instruments that allow them to make money, says Andrey Petrov, director of client relations at BCS World of Investments. Moreover, previously, many investment banks, according to him, had a large share of their business aimed at working with foreign markets: servicing non-residents, debt placement of Russian companies abroad, etc.

Major players have their own network and bank clients who can be transferred from lending to the debt securities sector, says Maxim Chernega, head of the DCM department of the corporate finance department at Digital Broker. And the issuer, choosing between a small and a large well-known organizer, provided that the placement price is generally the same, will probably give preference to the large player, the expert believes. “Plus, large players have virtually no problems with marketing support for releases, that is, they are ready to sell almost any volume,” he added.

The head of the debt capital department of Alfa Bank, Artem Starikov, noted that “the bank has no restrictions on ratings.” At the same time, he noted that in exceptional cases the bank “organizes issues for companies without ratings and is ready to buy out most of the issue for itself.”

The commission depends on the credit rating of the issuer and is a consequence of an agreement between the parties, notes Artem Tuzov, director of the corporate finance department at IVA Partners. The general rule for commissions is that the better the credit rating and the larger the placement volume, the lower the commission, he points out. In such conditions, according to Andrei Petrov, there is a risk that investment banks will take over the best issuers, however, the level of expertise of highly specialized companies that deal only with the placement of VDOs is higher, and they are ready to work for a lower commission.

The main risk of the VDO segment is the implementation of structural threats to the issuer, when, against the backdrop of external pressure and weak demand, revenue will fall, which may create difficulties for debt servicing, says independent financial analyst Andrei Barkhota. The logic of investors, he said, is that such negative scenarios can materialize after problems with larger issuers, and therefore the likelihood of threats is not so high.

In 2024, the volume of new VDO permits could amount to 50–65 billion rubles, with most of them coming in the second half of the year, Mr. Barhota predicts. “By this point, the OFZ yield and the key rate of the Bank of Russia may reach 10–12%, and the spread to OFZ will widen to 4–7 percentage points (currently 2–4.5 percentage points— “Kommersant”). These will be more comfortable parameters for both investors and issuers,” he concluded.

Ksenia Kulikova