Polyus issues bonds linked to the price of gold

Gold mining company Polyus (MOEX: PLZL) has collected a book of orders for bonds linked to the price of gold in the amount of 15 billion rubles. Despite the fact that the subscription volume turned out to be slightly lower than stated, the yield on the securities was only 3.3% per annum, while classic Polyus bonds are traded with a yield of 12% per annum. Such securities do not often appear on the Russian market, but the current situation with high rates may encourage other issuers to issue them.

On Tuesday, January 23, Polyus closed the order book for placing a bond issue with a par value pegged to the ruble value of gold. Investors were offered 5.5-year securities worth up to 20 billion rubles, but the final placement volume was 15 billion rubles, two market sources told Kommersant. However, the coupon was set at 3.3% per annum. In the information disclosure, the issuer noted that the placement price was RUB 5,737. (cost of 1 g of gold at the Central Bank exchange rate as of January 23).

Bonds linked to the price of gold are a rare instrument not only in the Russian but also in the international market.

According to Alexey Bulgakov, head of the debt market analytics department at Renaissance Capital, such issues were carried out by the Indian government for the local market. “In developed markets, the rationale for the existence of such securities is not obvious, since there are many gold ETFs,” the expert notes.

The first such securities on the Russian market were offered to investors by the gold mining company Seligdar. In May 2023, the issuer placed a five-year issue worth RUB 11 billion. at a rate of 5.5% per annum. Just six months later, the company placed six-year securities worth 6.8 billion rubles. also at a rate of 5.5% per annum.

Although the placement of Polyus, according to two Kommersant sources on the market, took place among a limited circle of large investors, its conditions were market conditions.

Igor Kirillov, head of the bond department of Ingosstrakh-Investments Management Company, compares the Polyus issue with Seligdar’s “gold” bonds, which, with comparable maturities, are traded with a yield of more than 6% per annum, which is 3 percentage points higher than the placement yield Polyus bonds. This difference, according to the expert, corresponds to the difference in credit quality – AAA for Polyus and A+ for Seligdar.

In general, such securities would be of interest to the wider market, including portfolio managers and private investors, since they provide exposure to the price of gold, which depends both on the price of the precious metal abroad (in dollars) and on the dollar exchange rate in the Russian market. According to Sovcombank analysts, this year the price of the precious metal in foreign currency will be in the range of $2.2–2.3 thousand per ounce, the ruble price will be 6–6.3 thousand rubles/year. The key growth factors, according to Arseny Avtukhov, an analyst at Sovcombank’s investment analysis department, are perhaps the imminent start of a US monetary policy easing cycle and geopolitical instability. “Before the start of the CBO, many central banks preferred to keep reserves in US government bonds, but after the freezing of Russian assets, the status of American government bonds was shaken,” notes Mr. Avtukhov.

If the forecasts are not realized and ruble prices fall, the nominal value of the bonds will also decrease. Due to the fact that the bonds do not have collateral in the form of gold bars stored in the depository, it is worth taking into account the credit risks of the issuer, experts note. Alexey Bulgakov considers the risks of such investments to be a possible change in the mechanics of the ruble/dollar exchange rate and the determination of the price of gold by the Bank of Russia in the future.

Nevertheless, the market is waiting for new placements, including because they are beneficial to issuers. Firstly, as Alexey Bulgakov notes, companies receive relatively inexpensive funding in an environment of high ruble interest rates. For example, five-year ruble bonds of Polyus are traded with a yield above 12% per annum. Secondly, companies are able to link the currency of inflows and outflows. “The cost of servicing a gold loan for a gold mining company will change in the same direction as the price of gold sold, which additionally hedges currency risks,” notes Mr. Avtukhov.

Vitaly Gaidaev