Substitution without placement – Kommersant
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Tinkoff Bank issued bonds replacing 49% of the issue of “eternal Eurobonds”. Payments for them will be made in rubles. Russian issuers must replace bonds by early 2024, but the process is slow, market participants and experts say. In their opinion, a number of companies and banks have received permission from the government not to replace bonds or expect to do so in the near future.
Tinkoff Bank announced the completion of the placement of replacement bonds (SO) for the dollar issue of perpetual bonds TCS Finance DAC (Ireland). Before the beginning of the week, only securities exchanged at NSD were traded on the exchange – for $72 million. Today, securities exchanged outside the exchange (at Euroclear) were traded, explains one of Kommersant’s interlocutors. As a result, the bank was able to replace 48.74% of the 2017 issue ($300 million), actually placing $146.2 million.
Last week, formally the first issue among banks of replacement bonds was carried out by Alfa Bank, but it was for ruble securities. In total, the bank replaced 12.3 billion rubles. out of 15 billion rubles, and plans to issue a second issue of such bonds on November 30.
A year ago, Sovcombank completed the placement of subordinated bonds, issued including to replace Eurobonds (the volume amounted to $163.6 million, see “Kommersant” dated November 29, 2022). The bank called the project a “voluntary buying and selling process.” But technically the release does not qualify as a replacement. The Central Bank uses the definition “replacement bonds” in relation to such securities.
Thus, the placement of Tinkoff Bank can be considered the first issue of currency substitution by a Russian bank, noted Alexey Bulgakov, head of the debt market analytics department of Renaissance Capital.
According to his assessment, the total volume of replaced securities “in principle corresponds to the “replacement coefficient” at the first placements of ZOs, for example, by Gazprom (50%).
According to the decree of the President of the Russian Federation, all issuers are required to issue replacement bonds by the beginning of 2024. Including Tinkoff Bank, 33 placements have already taken place, totaling approximately 1.4 trillion rubles—this is less than 10% of the volume of the corporate bond market.
“The process of replacing Eurobonds is going very slowly,” says Alexey Tretyakov, CEO of Arikapital Management Company. “Since the practice is new and is just being formed, some processes are expected to take a little longer,” explains HKF Bank, promising to carry out the replacement by the end of the year. According to Mr. Tretyakov, issuers simply “have no economic motivation.” “Investors are primarily interested in replacement, and then only those who have access to the Russian financial market,” explains the expert. “For issuers, repurchase of Eurobonds at a discount or restructuring are more profitable.”
However, Deputy General Director of Digital Broker Alexander Tsyganov sees no reason for banks to refuse to replace bonds. In terms of profitability, such securities “are more interesting than corporate ones, since historically financial organizations have had a premium on the rate compared to the same mining companies,” he explains. In addition, since the denominations of the issues are expressed in dollars and euros, and settlements are made in rubles at the Central Bank exchange rate on the date of coupon payment or redemption, the ruble yield on such securities will be higher, notes Mr. Tsyganov.
According to Mr. Tretyakov, “given the current pace, all issuers will definitely not have time to replace issues before the new year.”
The expert expects a total of five to seven more placements from corporate and banking issuers: “The rest will either count on an extension of the deadline or hope for the absence of sanctions for failure to comply with the decree.”
Currently, decisions to issue replacement bonds from six issuers are known: Alfa Bank (two issues in US dollars), ICD (seven issues in dollars, two in euros and one in rubles), Sovcombank (four issues) TMK, ChTPZ And HKF-bank (one issue in US dollars). The total declared volume is $5.8 billion, €927.2 million and RUB 5 billion.
Despite the deadline, banks and companies have a way out: the Ministry of Finance’s legal commission for control of foreign investments can issue a permit that exempts them from issuing replacement bonds, notes Pavel Kutovoy, advisor in the banking and financial law practice at Stonebridge Legal. “It appears that a number of issuers have already received or are planning to obtain such approvals.”
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