Key conclusions
Bonds are becoming an alternative instrument to attract long-term finances
“We are shifting to the model implying that institutional investors are squeezed out of the banking sector to the bond market, partially to the equity market <…> And seeking for yields, private entities will be increasingly looking for alternatives,” said Sergey Shvetsov, First Deputy Governor, Bank of Russia.
“Everything is fine if it is organic, that is why we should not be running ahead of ourselves. We have to gradually develop the market, attracting both enterprises and creditors there in such a way that prevents the creation of bubbles,” Sergey Shvetsov said.
“The market has great prospects. Once again, I believe in large business, I believe in securitization for small business, and I believe that the financial literacy will probably be partially replaced by collective forms of investment, such as mutual funds and so on,” Sergey Shvetsov added.
Bonds provide opportunity to diversify risks
“We see two types of enterprises that can issue bonds in one form or another, those are big enterprises and certain small ‘star companies’ with an interesting business model,” Sergey Shvetsov said.
“Deposit rates are going down as planned <…> Many depositors understand that in order to obtain higher yields alternative ways to invest funds are required <…> All the same, we have understood that regions need to invest particularly into local enterprises and in bond instruments that are clear from the viewpoint of profitability and risks,” said Konstantin Rogov, Deputy Chairman of the Management Board, Orient Express Bank.
Role of banking sector in lending to big enterprises is changing
“The role of banks, the role of intermediaries in securitization is very important. The bank will turn from the institution that takes the margin assuming all risks, to the institution that will live largely on the fee, connecting the creditor and the borrower <…> And generally speaking, banks should be involved in the banking business, they should not provide lending to owners that own businesses,” Sergey Shvetsov added.
Challenges
High costs for entering the bond market
“Still, it is more expensive for residents of the Far East to enter the market compared with other regions,” said Olga Ivanchenko, Aide to the Governor of Khabarovsk Region on Economic Issues.
“And only five regions, including Nizhny Novgorod, the Sverdlovsk region, the Tyumen region can boast that there are more than five issuers on their territory,” said Elena Chaikovskaya, Director, Financial Market Development Department, Bank of Russia.
Risks related to lack of information about issuers
“From my viewpoint, there are funds, and pension funds have a fairly large amount of finances, the resources exceed one trillion, but it is necessary to structure respective projects and make sure they have the lowest required rating level,” said Sergey Tishchenko, Chief Executive Officer, Expert RA.
“If a company discloses information, if a company regularly reports about its success or, probably, failures sometimes, the risk perception from the side of the investor or the creditor declines considerablely, which affects the cost of borrowings,” said Pavel Isaev, Executive Vice President, Gazprombank.
Solutions
Adjustment of requirements to bond market
“For a company to issue bonds is an outstanding event that happens seldom. And it is necessary to complementary supplement the banking sector, and standardization is needed in order to turn the capital market into an organism able to compete with the banking sector,” Sergey Shvetsov said.
“I think that if this kind of resource, standard emerges, and collective efforts to promote this standard are made, it will seriously reduce the cost of finding information and raise the attractiveness for various companies on bond issuance,” Sergey Shvetsov added.
Subsidizing interest rates
“I think that such instruments should be supported and developed, my personal opinion from the viewpoint of state support is that motivation is possible in principle, and required <…> There should be more instruments. Without money we won’t be able to improve the economy and the more there are accessible instruments, the better it is,” said Denis Kravchenko, Deputy Chairman of the Committee on Economic Policy, Industry, Innovative Development, and Entrepreneurship.
“For advanced special economic zones, subsidizing the rate will probably be the most efficient measure that will attract the capital and ensure that the instrument will works,” Olga Ivanchenko said.
“The financial market provides an opportunity to receive unsecured financing <…> In order to make bonds equal regarding encouraging business to take loans, as I have already said subsidies should be provided to agriculture producers, and in theory the same subsidy should be provided on coupons, on bonds,” said Roman Goryunov, Chairman, Russian Trading System Stock Exchange.
Establishing cooperation with eastern investors
“Japan is an active international investor, and today the amount of total portfolio investments throughout the world stands at 4.1 trillion US dollars. Out of them, those in the Russian Federation account for only 0.05% <…> If you take a look at the list of strategic countries for the Japanese portfolio capital, it includes 33, and Russia is somewhere on the 29-30th spot,” said Pavel Gotsev, General Director, Solid Investment and Financial Company.