ACRA has published a research report titled “Regional bond market: reasons for stagnation”, which looks at the placement of sub-federal and municipal bonds in 2019. The research is part of ACRA’s expert and analytical cooperation with the Roscongress Foundation.
“As a leading non-financial development institution, the Roscongress Foundation promotes the publication of a wide range of research concerning the agenda of Russia’s business events. ACRA’s report on the regional bond market takes an objective and detailed look at the main advantages and disadvantages of this investment instrument, and is for both representatives of regional governments and people who are interested in finance,” commented Alexander Stuglev, Chairman of the Executive Board and Director of Roscongress.
ACRA’s analysts came to the conclusion that Russian regions’ interest in bonds is diminishing. In 2019, there were 15 placements to a total of RUB 96.75 bln. Although the total volume of placements remained virtually unchanged from 2018, the number of new placements in 2019 fell by a quarter. Only nine regions and two municipalities decided to offer bonds to the market last year. For comparison, 14 regions and one municipality made new bond placements in 2018, and in 2017 there were 29 regions and three municipalities.
Regions are losing interest in the bond market, despite the favorable conditions that it offers. In 2019, the yield on sub-federal bonds declined to the minimum level for the first time in the entire analyzed period (since 2013). Last year the annual weighted average yield on initial bond placements amounted to 7.2%; prior to the recession, in 2013, it was 8.1%.
“Regions had almost zero need to resort to borrowing because their income increased. The number of regions running budget deficits last year almost halved compared to 2017,” commented Elena Anisimova, Director – Head of the Sub-sovereign Ratings Group at ACRA. She noted that given the current circumstances, Russian regions that require financing prefer to take out bank loans, which are easier to manage because they can be repaid ahead of schedule or their interest rates can be reduced.
“Regional bond market: reasons for stagnation” is available on the ROSCONGRESS.ORG informational and analytical system.
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