Sovcombank replaced bonds

Sovcombank completed the placement of subordinated bonds, which could be purchased with proceeds from the sale of outstanding Eurobonds. Thus, investors were relieved of the risks that the securities of the sanctioned bank carried. This was the first and so far the only placement of such debt securities among credit institutions. Experts believe that this is due to the financial condition of banks and the need to comply with regulations. In addition, the procedure is economically feasible only for organizations with a low volume of previously placed Eurobonds, they point out.

On Monday, November 28, Sovcombank completed the placement of subordinated bonds issued, among other things, to replace previously placed Eurobonds. This was reported by the credit institution. In total, 27.3% of the total volume of securities offered to investors was placed in the amount of $163.6 million. “The placement of new securities was supported by the purchase of Eurobonds from investors. This was not an issue of replacement bonds, but a voluntary process of buying and selling securities,” explained Sergey Khotimsky, First Deputy Chairman of the Board of Sovcombank. At the same time, he noted that the investors who took part in the placement “will not be exposed to legal and other risks that Eurobonds began to bear due to sanctions.”

The issue of subordinated bonds of Sovcombank was registered with the Bank of Russia in May of this year, even before the appearance of amendments to the legislation on replacement bonds, for which Eurobonds could be exchanged. The volume of the issue amounted to $600 million, the coupon rate was 6.5% per annum. The circulation period is set at 8.5 years with the bank’s right to buy back the securities 5.5 years after the placement. As part of the placement, investors were offered the opportunity to sell bonds from three issues of subordinated Eurobonds (two perpetual and one with maturity in 2030, the total volume is over $767 million).

The process of placing new securities took quite a long time – the bank began placement on August 8. According to Kommersant’s source in the financial market, Eurobonds of “old” issues were bought out by the bank, and with the funds received, investors bought out “new” subordinated bonds. In fact, these were the first replacement bonds issued by the credit institution. Sberbank, VTB, RSHB and MKB, which also have various issues of Eurobonds in circulation abroad, did not respond to a request from Kommersant about the possibility of issuing similar bonds. Alfa-Bank noted only that they can issue bonds only on the Russian market, but the bank “is still at the stage of planning the budget and, accordingly, next year’s bond issues.”

At the same time, corporate issuers that had already issued replacement bonds placed them for no longer than three weeks. However, the average volume of placement amounted to about 40% of the issue, and in some cases did not reach 25%. It should be borne in mind that these issues differed from the issue of Sovcombank’s subords in that their parameters corresponded to Eurobond issues, and investors could immediately exchange these Eurobonds for replacement bonds. To date, five issuers have placed 14 issues of replacement bonds worth about $4.8 billion. Five more issues of four issuers are in the process of placement and preparation.

The issue of replacement bonds of Sovcombank is dictated by several circumstances, says Anna Avakimyan, chief analyst at RegBlok. Firstly, according to her, prior to the start of the MER, the share of foreign currency assets was at least 20%, which required an appropriate resource base: client deposits and issued securities denominated in foreign currency. Secondly, the total volume of issued debt securities of Sovcombank does not exceed 30 billion rubles, which is not much compared to the bank’s capital, which analysts estimate at about 200 billion rubles.

Perhaps the general reason for the lack of interest of banks in issuing replacement bonds in the financial condition of the issuer, says Ekaterina Makeeva, partner and head of the sanctions practice at A-PRO JSB. In the case of banks, according to the lawyer, it is also necessary to ensure compliance with banking regulations. Ms. Makeeva suggested that, in principle, issuers have no special incentives to replace debt with a “more executable” one.

Eurobonds were issued in series, issuers can also pay attention to maturity dates, the order of payments, as well as the circle of investors or the system of rights accounting (in particular, the proportion of investors whose securities are accounted for abroad), Ms. Makeeva noted. For example, Metalloinvest exchanged Eurobonds, accounting for which was carried out by Russian depositories. LUKOIL, after placing replacement bonds, also redeemed part of its Eurobonds through the Moscow Exchange with payment in rubles at the rate of the Central Bank.

Ksenia Kulikova, Ekaterina Volkova