The Russian debt market experienced a decline in November

After growth in October, the Russian debt market experienced a decline in November: companies reduced borrowing by a quarter, to RUB 307 billion. The market cites another increase in the Central Bank’s key rate as the reason. Against the backdrop of falling OFZ yields, more and more issuers are placing classic bonds with a fixed coupon. In December, the activity of companies may increase again if favorable market conditions remain, experts believe.

According to Cbonds, in November Russian companies conducted 122 placements of ruble bonds worth about 307 billion rubles, which is almost 24% lower than the previous month and almost one and a half times worse than the result of the same period in 2022. According to the head of the debt capital markets department of BCS CIB Denis Leonov, the decrease was “a direct consequence of the Central Bank’s decision to increase the key rate to 15% per annum.”

The largest contribution to the volume of placements in November was made by issuers of the real sector, which accounted for two-thirds of the total volume (RUB 206 billion). This was facilitated by several large transactions – Avtodora (22.6 billion rubles), Gazprom Neft (34 billion rubles) and JSC Russian Railways (45 billion rubles). Financial organizations, including banks, also actively placed bonds, both classic and structured. According to Alexander Ermak, chief debt market analyst at BC Region, 68 issues of structured bonds issued by credit and other financial institutions accounted for RUB 31.03 billion.

The November trend on the primary bond market for high-quality corporate issuers of the first and second tiers was the resumption of placements of bonds with a fixed coupon rate after this segment was practically closed in the previous two months of this year, notes Mr. Ermak.

In particular, in November OJSC Russian Railways placed a seven-year issue with a yield of 13.15% per annum and a spread to the OFZ G-curve of 133 bps. In addition, four issues took place (Alfa Bank, Gazprombank and two from Rostelecom) with a maturity of two to three years and with a yield of 13.37–13.92% per annum and a spread to the OFZ G-curve of 176–237 b. P.

The return to the practice of placing fixed-rate bonds was facilitated by a fall in government bond yields. At the end of November, the yield on OFZs with a maturity of two to three years decreased by 100–133 bps. p., up to 11.37–11.6%. “The consensus does not yet see the Central Bank rate above 16%, and now investors are already beginning to give preference to a fixed coupon,” notes Dmitry Nikonov, head of the investment analysis department of Sovcombank.

In December, market participants expect a recovery in issuer activity. According to Cbonds, over the previous four years, it was in December that companies borrowed the maximum amount of funds. In particular, in December 2021, the volume of market placements for the first time in history exceeded 1 trillion rubles. This year will not be an exception, says Denis Leonov, citing the existing pipeline of planned transactions at least until mid-December. Activity at the end of the year can be associated with refinancing cycles, year-end closing and, most importantly, the New Year holidays. “Issuers are covering their funding needs ahead of the long weekend on the market. January activity is traditionally very low due to the small number of working days,” notes Dmitry Nikonov.

Further dynamics in the primary market will largely depend on the actions of the regulator, especially on its decision on the rate at the last meeting this year, says Tatyana Ambrozhevich, senior vice president, head of the debt capital markets office of Rosbank. Sovcombank analysts allow the key rate to increase to 16%. Expectations of a rise in the key rate at a meeting in December may restrain issuers, Dmitry Nikonov clarifies, but “they are unlikely to lead to a decrease in placement volumes relative to November.”

Vitaly Gaidaev