2019 deceived the expectations of the investors: they were preparing for the worst, but neither a trade war nor the risks of a global economic slowdown or geopolitical conflicts could not hold back the growth of markets. It was the year of the real “bull”, the fed came to the aid of the Central banks. And Russia has taken a worthy place among the Champions of the year. But the longer the holiday, the harder the hangover. 2020 investors met with cautious optimism – many recession seems almost inevitable, and this time there is no help. Central banks have shot their ammunition, state budgets burdened with debt, and therefore can only prepare for Armageddon to meet him head-on. The participants of the session “Traditional capital markets and alternative sources of borrowing,” Financial forum of “Vedomosti” had earned in 2019, shared their predictions for 2020 and discussed what should be done for development of Russian market to open up new business opportunities for raising capital.
the Year of the “bulls”
Konstantin Akimov, managing Director of JPMorgan in Russia and the CIS
/Vardan Hayrapetyan / Vedomosti
“2019 was good. It started from a relatively low base, since 2018 was a failure because of the sanctions. At the end of 2018, most economists predicted a recession in the next 12-18 months, our economist evaluated its probability by the end of 2019 75%. No one expected a reversal in the first quarter, on the contrary, they expect that rates will continue to rise and this will provoke a crisis by the end of the year. But it turned out exactly the opposite.
Rates began to fall, and about the recession nobody has yet said. While everyone understands that we are at the end of the growth cycle. This means that soon the recession will happen than not happen, but the question is when, and assessment of the near future has greatly improved.
Which countries fastere all grew up in this decade One of the most successful in the economy were the followers and neighbours of the Chinese Economy
the Russian market in 2019 looks very good about the emerging markets. Again, it started from a low base, and if the beginning of the year MSCI emerging markets grew by 10%, Russia showed an increase of about 30%.
There are several reasons for such growth. First – in General, the risks of tightening sanctions has gone from foreground to back. The second reason is a good conjuncture in the oil market. The price of a barrel over $60 is considered to be comfortable, which is beneficial to the value of the Russian assets. Third – the Russian market pays a good dividend that attracts investors struggling to find yield due to record low rates around the world. In Russia, the average dividend yield of around 8%, while valuation remains low, making them attractive to investors. They look at Russian market as a safe haven in comparison with other developing markets as an opportunity to earn.
2019 was very good and for the Eurobonds. In the beginning of the year everyone expected that rates will rise, but expectations are turned around in the first quarter. Probably not without the help of the American President [Donald trump] that was too hard on the fed, seeking to reduce rates. And rates went down. Many companies decided to take advantage of such favorable market conditions and to take. We are engaged in placing of papers “Severstal” in September of this year to 3.15% for five years – this is the lowest rate at which the Corporation is ever placed on international markets.
of Course, the situation in the markets will depend on the events of 2020, any geopolitical shock can quickly change the predictions, as happened in 2018, the Situation will depend on the direction of rates. While it is expected the status quo in the BLiiisee months. JPMorgan forecast for end of 2020 – a gradual increase in rates, but rather, it will be a return to a normalized level. Of course, an important factor will be elections in the US: the us economy is in good shape now, and the task of the President to keep her in this form at least until the election. Why wait for a hard action to increase rates is impractical, and the situation will remain favorable for borrowers, especially in the first half of the year”.
Mikhail Avtukhov, Vice-Chairman of the Board, head of corporate investment banking Sovcombank:
/Vardan Hayrapetyan / Vedomosti
“Take in the currency makes sense only to those companies whose business is tied to the currency. The other is to avoid currency risk and to raise funds in rubles. For the local market 2019 was probably the most successful in recent history. In 11 months – more than 450 transactions, for the year the market will grow by 35-40%. What have been the main drivers? Of course, low interest rates, stability, absence of external shocks. Rate bonds at a faster pace decreased compared to the rates of loans, so we saw the transition of borrowers from the market of Bank loans to the public debt market.
most issuers have attracted funds for refinancing. Unfortunately, not a very large proportion of those who takes on investment. In the Russian economy, investment activity is now relatively low, this has implications including in the bond market. Beginners, unfortunately, also a bit, mostly occupied by large companies.”
previous topic: Banks predict a weakening of the dollar in 2020 a Trap for Russia
Konstantin Akimov, managing Director of JPMorgan in Russia and the CIS
“the Key problem of the Russian market remains its low liquidity. This is one of the main obstacles for employinginternational capital, especially funds that are not spetsializiruyutsya on emerging markets. Low liquidity makes it difficult for companies to raise capital, limits their evaluation, but because of the low valuation of the company, in turn, refuse placements. If not for this factor, many IPO, planned for 2019, would take place. To find a way out of this trap is not easy. But shares of companies that increase their liquidity, increasing in price”.
Sergei Arsenyev, chief investment officer of AFK “Sistema”
/Vardan Hayrapetyan / Vedomosti
“We are very pleased with the results of secondary offering of shares “Children’s world” (its shareholders sold 23.7% of the company AFK “System” has lowered the share from 52.1 to 33.4%. – “Vedomosti”). When deciding about the SPO, we were absolutely clear that the “Children’s world” is the proverbial liquidity trap, and if we don’t go to some serious measures, then there is every chance in this trap and stay.
“Children’s world”, I think the best example of this phenomenon: from quarter to quarter, the company showcases some of the best growth rates among large retailers, a very high dividend yield and, despite the very positive operating momentum, market capitalization stood at $1 billion and not moving at all. Most investors told us that you can’t come to the company with liquidity below $2-3 million In “Children’s world” it was less than $1 million almost since the IPO (February 2017 – “Vedomosti”). This position of investors and led us to the decision to hold an SPO”.
New market
Konstantin Akimov, managing Director of JPMorgan in Russia and the CIS
“Among the new products there are two main trends – green debt and convertible bonds.
the Green issue has become key in the world in the last two years, Russia still lags behind globalof covered markets. Green bond has its own specifics. Borrowed money needs to be spent on green projects – all the money, not the part. And such projects in Russia is small, most of our industrial companies do not belong to green. In the world’s green bonds are issued in a largely industrial company. Now a new approach – the issue is not purely green bonds, without such severe restrictions on the use of borrowed money.
Convertible bonds is also less popular in Russia than in global markets. The first reason is still the same low liquidity of the Russian market, high ownership concentration, a low free float of most companies. The second is a complex product, not clear to all. The third factor – companies pay high dividends, which limits their ability to issue convertible bonds”.
Mikhail Stiskin, a senior Vice-President, Finance and strategy of the company “the pole”
/Vardan Hayrapetyan / Vedomosti
“pole” placed in the 2018 convertible Eurobonds on $250 million, then bought them back at $50 million for 86% of face value, when they dipped in price. In the end, well earned to market volatility.
It’s kind of a tool. It is cheap from the point of view of the coupon, but in reality you should always consider that you also sell a stock option, which may be exercised, say, three years – and you have to be willing to give the shares at this price. Also unique database of investors who buy convertible bonds are mainly global funds who are ill or do not understand Russian risk, and so you have to spend a lot of educational work. But the tool is in principle interesting, we like it”.
Alina Sychev, head of Department of the markets of stock and loan capital of the company “Owl capital”:
/Vardan Hayrapetyan / Vedomosti
“Our discussion has been that we have Eurobonds, IPO, SPO, while the world is seriously expanded the list of instruments used for raising capital. Need at all levels – and banks, and the regulator is to change our system, otherwise we will continue to limit their opportunities.
Indeed, because of certain restrictions, few companies can use a tool such as convertible bonds. They can only be issued on existing shares, i.e. the company needs to redeem them and keep as quasiconcave. The tool is only used by companies that have GDRs”.
Mikhail Avtukhov, Vice-Chairman of the Board, head of corporate investment banking Sovcombank:
“Convertible bonds – it is virtual for Russia tool. While the stock market is in such a state, issues of convertible bonds will be rare.
I would be among of the opportunities noted again opened for banks access to the market of subordinated debt. This year we have placed subordinated bonds for the first time since 2017, and after us was even borrowers that can not but rejoice.
as regards the need for new tools, while rates are reduced, while the market is hot, the borrowers will give preference to a simple tool: why invent something new if it is cheap to borrow. The longer the period of stability, the stronger the market will develop in depth, rather than breadth. We had about 80 transactions on the local debt market this year. When such activity is difficult something new to develop.
However, this year we held the securitized debt and offered to qualified investors. We registered zelEnya bonds for “solar systems”, which built two solar power plants, and securitizers in the future cash flow under the contract provided by power (program PDM renewable energy – support renewable energy investments).
I don’t agree with the fact that in Russia there is no place for green debt. Many companies that take for retrofitting green actually attract funding. Only on the basis of programmes for renewable energy in green color, can be dyed dozens, if not hundreds of billions of rubles. There are serious investors, and that to attract money, you can use structural bonds to securitize the transaction, will facilitate the transition from project financing to public debt”.