Looking at prospects for the new year, what do you see as the main drivers for growth and which sectors will drive deal flow?
I believe the key driver for growth this year will be access to strong liquidity, keeping in mind the demands for narrowing budget deficits and other types of expenses for the state. Therefore, strong liquidity in the banking system will provide the necessary potential for growth on the corporate bond market. On the other hand, we see some potential in sourcing capital from private deposit funds amid the current easing trend by the Central Bank and the expected drop in rates across the board. The flattening yield curve will hopefully encourage new types of investors to enter the market, particularly those who are less risk-averse and that, in turn, will give opportunities for second and third-tier issuers to tap the market.
Are we likely to see innovative instruments and borrowing structures emerge in this new market environment, particularly in light of the new OFZ bonds issued and promoted by the government?
It should give a promotional boost to such instruments, for sure. For us the motives behind this move are still not very clear, particularly the plan to privately place OFZ bonds to members of the public, which just as easily can be purchased on exchange. But the fact that the instrument is promoted by the Ministry of Finance and the CBR indicates that the authorities will provide the necessary regulatory framework, for instance, removing the bond-bearer tax for some of the tenors, and work to educate potential investors, as part of the government initiative. From that perspective, we anticipate that this instrument will prove to be quite attractive and draw new players into the market.
Will the apparent rekindling of interest in Russian debt products from foreign investors and the return of international banks being seen more recently aid the development of more sophisticated financing structures in Russia?
I wouldn’t overestimate this trend for now – foreign investors’ focus lies mainly in state-corporate notes and Euroclearables – and the strengthening demand on the Eurobond will inevitably put downward pressure on rates in the domestic markets. But new instruments, such as securities on project bonds and securitization of other types of assets will offer more opportunities to develop the secondary market in the country, and that could be very interesting because it would allow for an expansion of risk profiles and tenors, and enable the creation of instruments to support complex long-term projects. That would have a positive impact on the development of Russia’s economy.
I would also pay attention to so called “zones of priority development”, i.e. strategically important regions in Siberia and the far eastern parts of the country that merit preferential treatment in the form of tax breaks and looser regulations to boost development. Earmarked by the government, they offer great and relatively risk-free opportunities for foreign investors willing to get involved in major infrastructure, mining and development projects that also help to boost growth in some of the most underdeveloped territories in Russia.
What are going to be the biggest themes in the corporate debt market this year, and where do you expect to see the main risk?
The most prominent risks remain the same and largely unchanged – they include the upcoming Russian 2018 elections, global financial health concerns, Russia’s macroeconomic situation, and so on. There are no “Black Swans” appearing on the horizon – but then again, the very term indicates that they appear without warning.