Bonds to become more popular with Russia’s big business

MOSCOW, Dec 22 (PRIME) -- Demand of Russia’s big business for bonds will increase due to the need to refinance credit portfolios as interest rates decline, Analytical Credit Rating Agency (ACRA) said on Friday.

ACRA expects the bond market to see a wider range of issuers due to a higher risk appetite of non-bank financial organizations including pension funds and insurance companies, as well as individuals.

Companies will actively refinance their debt portfolios with cheaper debt in 2018, which will pressure their net interest margin results.

“Although inflation has fallen to its all-time lows, ACRA expects the monetary policy to remain moderately tough and interest rates to stay positive in the next two or three years, which will result in a significant spread between the cost of ruble and foreign currency-denominated debt. It will encourage large companies to keep a considerable share of their debt in foreign currencies,” ACRA said.

The agency said that almost all industries, except machinery production, have reasonable leverage of below 2.5x funds from operations before interest and tax. Metallurgy and power generation demonstrate the lowest leverage as most projects in the sectors have been finished and now generate a substantial cash flow.

Power production, telecommunications and retail have the best leverage performance. In 2018-2019, their leverage will continue to fall as positive real interest rates provide no impetus for high investment activity, ACRA said.

End