Moscow. December 25. Despite the minor-key mood of the first months of 2015 overall it was a success for the Russian bond market and even approached the peak results of 2013, when there were placed bonds (corporate, municipal and state) to 2.7 trillion rubles. This year, according to Agency, was posted on the Russian bond market at 2.4 trillion rubles. This year was a record year for income for investors in the OFZ in the past ten years and allowed the Russian market to become a leader among all local emerging markets, ensuring that the highest aggregate income. Has pleased investors and issuers and the activity in the primary corporate offerings. She even helped to offset slow loan growth and to refinance debt under conditions of limited access to external markets.
However, despite numerous successes this year, in the following market participants are less optimistic. Particularly difficult, in their opinion, may be the first half.
Growth factors
A key impetus to the development of the bond market provided the inflow of pension money. SPC have been active investors in the market of local bonds due to the receipt in the second quarter of 2015 ‘unfrozen’ of pension savings, as well as the cumulative contributions of the former “undecideds” from the Hooke of VEB with a volume of about 600 billion rubles. In local bonds was sent, according to the Gazprombank, the third of this amount, or about 177 billion roubles. In corporate bonds, according to the Bank, was invested 150 billion.
For example, in may-June, in response to the emergence of “long” pension funds, with the offerings went “Rostelecom”, “Bashneft”, “Magnet”, a number of structures of “Russian grids”, “Enel Russia”. Accommodation from may to September were active, including in the traditionally quieter for the market in the summer months.
A phased reduction of the key rate from a record-high 17% to 11% by the end of the year also interested participants in order to capture more price points. In the end, there were a lot of placements throughout the year, but a record was October, when market conditions were most favorable.
The third factor that made investors a closer look to the local bonds market, – limited access of Russian companies to international loans because of the sanctions. The number observed in the market of rouble bonds this year were Transneft, VEB, Rosselkhozbank and Gazprombank. In addition, many companies of ruble bonds was helped by the lack of access to endcredits and the Eurobond market.
Raised the status of the Russian bond market and the proposal of the Ministry of Finance in 2015 new tools: OFZ bonds with a coupon linked to RUONIA rate, and bonds with a face value of inflation-indexed. Almost all of the issues enjoyed strong demand from investors, which allowed the Ministry to place in the primary market bonds to 712 billion rubles. As a result, the domestic borrowing programme was even slightly exceeded: the net volume of domestic loans in 2015, including repayments, amounted to 92 billion rubles (planned 80 billion). After subcovering and many companies are thinking on the issue of such bonds.
“For local bonds this year may be recognized as quite successful. Market liquidity has practically returned to level of 2013”, – said the Deputy head of debt capital markets of the company “VTB the Capital” Alexey Konochkin.
Market leaders
A dozen of the major founders of placements during the year has undergone a marked change. As of mid-December, compared with the year 2014 from left: “VEB-Capital”, UniCredit Bank, “ronin”. Instead of them in the top 10 now includes Sovcombank (7th place), Sviaz-Bank (8-e place), “Zenit” (10th place). The five leaders in this case are as follows: 1st place – “Gazprombank”, 2nd – “VTB capital”, 3rd Sberbank CIB, 4th – BC Region, 5th – Bank “OTKRITIE”. Sixth place, as in 2014, is ROSBANK.
The reason for adjustments to the ranking in many ways – structural changes in the market (pension funds stepped up the number of private placemant or sales of releases of a limited number of investors), as well as personnel changes among key players, in particular, the transition part of the DCM team from “Open” to decide to actually create it the direction of Sovcombank. The competition was so stiff that the changes in leadership the list happened just a few months.
The main thing is to keep?
The number of restructurings and defaults in the bond market in 2015 was but incomparably less than in the 2008 crisis year, but kept the bondholders in constant tension. The losses were counted, in particular, investors “a Mechel” (restructuring), “UTair” (restructuring), “Transaero” (the default) and number of banks – “Note”, “Messenger”, Probusinessbank, Russia. However, disappointment of the year for many investors, primarily foreign ones, was the news about the debt problems of the Bank. In this regard, traditionally light for VEB and its subsidiaries of standard activities – such as the offer or secondary placement at the end of the year was not so smooth.
In the opinion of the asset Manager General Invest Denis Gorev, next year will be richer in comparison with that on negative events, primarily corporate and banks. “If this year were isolated restructuring and defaults, such events will be more in the next. In this regard, in my view, 2016 will be a year of growth and preservation. This is the main investicija,” he says, recommending “to sit in short OFZ”.
On than earned
The traditional indicator of returns on the market indices. According to the Moscow exchange, the average weighted yield index of government bonds amounted to in 2015 10,11%, the broad market index corporate bonds – 11,51%, this index municipal securities – 11,96%, the index of corporate bonds rated “BB” – 14,86%. In 2014, all these indexes, by the way, showed a negative average yield.
Among the most profitable business ideas of the year the investors consider the purchase of long-term OFZs. “The strategy of buying OFZ 46020 (2036) July gave about 14%. However, those investors that entered into these bonds at the end of 2014, the peak of the crisis, when it traded at about 55% of the nominal value (currently it is trading at 77% of par), could earn about 40% per annum”, – says Denis Gorev.
The yield of corporate bonds in the second half of 2015 exceeded the rate of deposits of legal entities. According to Gazprombank, compared to the average annual rate of deposits of legal entities corporate bonds from June 2015 started to provide a positive spread, in particular, in September it reached 175 b.p.
A year of promise
Estimated ROSBANK, the volume of primary placements of corporate and municipal securities in 2016, assuming rebound of the oil price in the first half of the year will exceed this year’s results by 20%. According to estimates Gazprombank and “Region”, the repayment of local bonds, a put option and coupon payments will be an additional source of growth for local market bonds. Moreover, the potential magnitude of this source is 2.1 trillion rubles, including funds from the repayment of local bonds in 2016 to USD 1.6 trillion.
The main intrigue of the ruble market in 2016 – the pace of monetary easing by the Central Bank. Market participants expect that the regulator will resume its rate reduction if not the end of the second quarter of 2016, in the second half of the year. By the end of the year, according to the forecasts of the main market participants, the key rate will be 8-9%. This will allow yields to fall next year.
As the Director of the Department of debt capital markets at ROSBANK Anton Kiryukhin, in 2016 more than half of Russian companies in the top 50 are planning to enter the market of ruble-denominated bonds, including exporters, major infrastructure, telecommunications company.
Drivers of growth
Despite the extension of the moratorium on the transfer of contributions, the market is counting on pension funds next year. NPF will be active due to the redistribution of the “undecideds” from the Hooke of VEB. The amount the market participants are estimated at 230 to 270 billion rubles. In addition, it is expected that the NPF will send on their debt market investment income (coupon yield), as well as part of funds from Bank accounts and deposits. Due to these items of income in total, the most optimistic estimates, NPF may send to the market of rouble bonds about 600 billion rubles.
Banks will remain major players in the bond market. To buy bonds they will be given the lack of quality borrowers and the growth of the Deposit base, outpacing the growth of credit portfolios. In particular, the activity can be involved in the recapitalization program through OFZs credit institution. “When rates drop, many companies will want to borrow funds for a period of 3-5 years. While Bank placements, particularly large banks, in the first half of the year I don’t expect due to the accumulated excess liquidity”, – says the head of sales, structured products and debt products in the capital market of UniCredit Bank Mikhail Radomyslsky. Plans of UniCredit for next year reserved, but on the market of primary placements, the Bank plans to go out, to save the current volume in circulation of bonds.
I expect market participants that the development of the sector will help the exemption from personal income tax of the coupon yield on corporate bonds. “Our customers with a large enough state, I think, will respond quickly and efficiently move their funds from deposits to bonds,” says the Chairman of the Board of General Invest Andrey Nikityuk. Now customers holding General Invest in deposits of about 70% of their savings in bonds, 10-15% in the long term the share of bonds, according to company calculations, can increase up to 50% today in European countries.
Inspire market participants and constant statements of the authorities about “banditaccia”, which, they hope, will finally gradually implemented at the regulatory level.
“In our view, next year also has the potential to be successful.(…) The confidence in such a scenario, the market gives the shape of the yield curve OFZs, which currently bears a distinct inverse in nature,” – emphasizes Alexey Konochkin.
However, expectations of managers portfolios are more reserved than the bankers. In the criminal code “Capital” note in particular that if a month ago was the baseline scenario with a stable trend on decrease in rates by the end, he became optimistic (its probability about 30%). “2016 will be careful, a lot will depend on oil prices. We do not expect stable trends characteristic of the outgoing year, there are fears that the average price of oil will fluctuate between $35-45 per barrel. In this case we expect a reduction in the key rate of the Central Bank to 10%,” says portfolio Manager of “Capital” Dmitry Postolenko. Moreover, in the first quarter of the criminal code does not exclude the correction even if the oil prices will fluctuate about $35 per barrel. The second quarter, according to these estimates, there will be a period of stabilization.
OFZ bonds or corporate bonds?
In the past year were clear trends, in particular, on the weakening and strengthening of the ruble. Next year, the expectations of market participants, will be volatile and challenging for investors. The most interesting for investment can be a medium to long – term bonds with fixed coupon rates Federal loan, and corporate bond quality borrowers. “We estimate that by the end of 2016 OFZ yields could decline to around 8,5-9% annual, sub-Federal bonds to 9.5-10.5% per annum. On the corporate bond market we expect a decrease in the yield of bonds of the first echelon to the level of 9,5-10,5%, second – up to 10-10,5%, third – 11-12%”, – says principal analyst debt markets GK “Region” Alexander Ermak.
However, there are those who still believes attractive investment for long-term OFZs. So, the main portfolio Manager management company “Aton-management” Evgenie Smirnov believes that in ruble segment on the current situation relevant OFZ bonds with a long duration, despite the likelihood of a correction in these papers. The head of the Directorate of analysis of debt instruments “URALSIB” Dmitry Dudkin also believes that long-term OFZs will continue to outperform the market next year. “In our view, securities with high duration is more attractive corporate issues and will provide investors with a one-year period yield of 15%. The yield on OFZ bonds with a floating rate can be 10%. Compared to OFZs, corporate bonds less attractive not only from the point of view of expected income and risk-profitability,” he said.
Managing Director UK “the Capital”, in contrast, believes that the rally in long-term OFZs, typical for this year, should not be expected. “You can earn from volatility, which of course is much harder than on sustainable trends. In particular, if rates will not go down, interest can be OFZ linked to RUONIA, and after the first quarter, is likely to become attractive and OFZs-IN,” he says.
“URALSIB” also advises investors to buy high-quality corporate Eurobonds of Russian issuers. “We see good potential to reduce the spread to the sovereign curve,” he explains. “If the purchaser of Eurobonds is a Bank, a good idea is to raise funding in roubles (for example, repos with the Bank) followed by a swap into dollars. Thus, it is possible to obtain the funding position in the Eurobonds is not much more expensive than the fed rate, which will allow to earn on this portfolio of 8-9% in us dollars in 2016”, added Dmitry Dudkin.
First Deputy Chairman of the Board of Sovcombank Sergei Khotimsk believes that the risk in Russia remains high, the yield curve is monotone convex, so the carry trade is still relevant in Eurobonds. “There are certain risks of growth rates faster than market expectations. On the rouble market strategy carry trade will not bring significant profits, but if oil prices show moderate growth, losses,” he said.
