Default payment is red – Newspaper Kommersant No. 160 (7361) of 09/01/2022

Debt market participants expect an increase in defaults in the segment of high-yield bonds (HDOs). Almost all segments are exposed to the risk, their share can reach 20% of the market. This situation is associated with tighter lending, disruption of business processes due to sanctions and the macroeconomic situation in general. This will not hinder the growth in the number of placements, experts believe, although issuers will have to offer investors fairly high yields.

Experts interviewed by Kommersant expect an increase in the number of defaults in the segment of high-yield bonds. The tone was set by the plastic processing operator Ebis, which at the end of August did not pay coupons for two bond issues for 5.2 million and 18.1 million rubles. In total, there are seven issues of debt securities in circulation in the amount of 1.5 billion rubles. The company did not respond to Kommersant’s request, the representative of the Unitech Service bond holders also failed to promptly contact the issuer.

The VDO market has dipped significantly this year, experts say, negative news is now forcing investors to look at it with caution and demand large premiums from issuers.

The yield spread to the risk-free curve of the Cbonds-CBI RU High Yield index is now around 700 bp. n, whereas previously it was in the range of 400–500 bp. etc., notes Alexey Kozlov, an analyst at FG Finam. At the same time, the volume of primary placements decreased by about 3.5 times year-on-year, adds Dmitry Alexandrov, managing director of Ivolga Capital.

Difficulties with lending both in banks and on the public market become prerequisites for defaults, the debt mechanism has not yet fully worked, Dmitry Alexandrov believes. A number of issuers, he adds, are experiencing difficulties with marketing or supply, which also increases default risks. Small companies with weak management and a high debt burden are negatively affected by the depressive macroeconomic situation, says Sergey Suverov, investment strategist at Arikapital Management Company.

In general, according to Mr. Alexandrov’s forecasts, about 20% of the VDO market is at risk of default, which may affect the investments of individuals, whose share in the segment exceeds 90%.

Now the market volume is estimated at 130 billion rubles, and the total number of issuers exceeds a hundred, and last year only five companies defaulted. However, Maxim Chernega, head of the DCM department of the corporate finance department at Freedom Finance, does not expect a massive wave of defaults: “Most likely, they will remain spotty, again, unless there is a sharp deterioration in the economy as a whole in autumn and winter.”

First of all, companies that need to pay off large volumes of obligations are under attack, predicts Alexei Kozlov. According to Mr. Alexandrov, all segments are at risk, but the MFO segment is “relatively safe” (the least affected by the crisis, see chart). “Kommersant” dated August 16) and agriculture, as there “companies are performing strongly against the backdrop of still high food prices and better leverage opportunities.”

Reduced requirements for institutional investors could support the market, experts believe. Tax incentives would also have a positive impact. But Mr. Alexandrov does not expect a massive influx of institutional investors into the VDO: “Individual players tried to enter at the end of 2021, but now they have no interest in the market.”

And even in the current environment, experts expect an increase in the number of placements in the VDO segment. According to Mr. Chernega, by the end of the year, it will reach 50-60% of the volumes of 2021. A community of professional investors specializing in VDO has formed on the Russian market, and, according to the expert, they will support new placements.

Ksenia Kulikova