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Issuance of ruble-denominated bonds
Investment mechanism in high demand
Today, corporate bonds have emerged as a financing-generating mechanism in high demand.
Corporate bonds provide the issuer the needed flexibility in mobilizing financing resources. They can be placed among a broad base of investors and they circulate in the secondary market in a fairly simple manner. Bond borrowings allow the issuer to raise investment funds at relatively low costs and, under certain circumstances, make it unnecessary to use part of their assets to guarantee the return of the borrowed capital or to resort to third parties' guarantees for this purpose.
Corporate bond issuers enjoy the following tax benefits:
- Interest (discount) pertaining to the issued bonds can be counted as part of the non-sales costs
- Interest costs are accepted within the applicable refinancing rate range plus 3 percent
The corporate bond market is increasingly viewed as an effective source of financing resources and more and more Russian companies are accessing the public market with their bond borrowing programs. At the same time, it should be born in mind that the the issuing company's capacity to borrow in terms of volumes, maturities and profitability of funds being raised largely depends on its size and position in the industry and securities market. Designing the parameters for a bond issue of a specific issuer requires professional expertise to identify and evaluate its capacity, needs and current market environment. Close cooperation between the financial consultant and the issuer in identifying the modalities of the issue provides a guarantee for a successful placement of the bonds and ensures their effective performance in the secondary market.
Horizon: Client bond market development program
Horizon offers services in developing and implementing programs for Russian companies to access the corporate bond market. A typical program comprises the following main elements:
- Development of a medium-term plan for a bond issue integrated into the company's strategy for continued business growth
- Inaugural bond placement
- Development of a liquid secondary market for the inaugural bond issue
- Placement of subsequent issues and work in the secondary market.
Thanks to the expertise of the specialists at Horizon, the proposed program will allow the client to utilize the full potential of the Russian corporate bond market to raise financing resources by gradually extending issue maturities and sizes while reducing their costs. Acting as the arranger of the client's program to access the ruble-denominated bond market, Horizon represents and serves the interests of the client and undertakes to perform the following functions:
1) Develop the parameters of the issue and prepare the necessary documentation:
- Identify the modalities of the bond issue based on the needs of the issuer and the market environment
- Prepare the prospectus of the issue reflecting the special features of the proposed financing scheme
- Register the issue in the Federal Financial Markets Service (FFMS)
2) Arrange the inaugural issue placement
- Assemble a consortium of underwriters
- Launch a due diligence procedure for the bonds at MICEX leading to a MICEX listing and inclusion of the bonds into the Stock Exchange quotation list
- Arrange a tender, to collect and process orders, as well as to place the bond issue among interested investors and provide for additional tranches in the course of the inaugural placement
- Prepare and conduct investor presentations prior to placement
3) As part of the support for the bond circulation in the secondary market:
- Develop a liquid secondary market via the market-makers mechanism
- Provide analytical support for the secondary market
Program implementation results
- Developing a flexible mechanism to provide the company financing resources in the internal market
- Raising required financing resources at optimal prices and with needed maturities
- Enhancing the company's debt instrument market capacity through increased liquidity
Inaugural bond issue indicative modalities
Bond issue modalities are customized for each individual client.
| Issue size |
15-20 percent of the annual turnover |
| Maturity |
3 years and up |
| Placement time frame |
To be determined by the issuer |
| Cost of placement |
At par |
| Coupon rate |
To be determined on a competitive basis based on the interest rate on the first day of the placement |
| Mode of placement |
Open subscription |
| Coupon period |
6 months |
| Issuer's call option |
For high-risk instruments - under a year
For low-risk instruments - 1.5 - 2 years |
| Trading floor |
MICEX, securities market section, over-the-counter market |
| Depositary |
National depositary center |
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Profitability targets
In determining the profitability targets for a bond issue, profitability of the financial instruments circulating in the Russian debt instruments market are used as benchmarks: GKO/OFZ, subfederal bonds, corporate bonds of Russian issuers.
Federal bonds
The premium of corporate bonds relative to the profitability of GKO/OFZ with similar maturities must represent a few basis points for the following reasons:
- Lower risk associated with GKO/OFZ
- GKO/OFZ higher liquidity
- Differences in applicable investor taxation regimes
Bonds of federal entities
With a high degree of probability, the level of risk associated with these bonds can be regarded as very similar to that of major Russian companies. Based on this assumption, the profitability of corporate bonds shall not be higher than the effective profitability of municipal bonds.
Issue preparation minimal time frame
| Agreeing issue modalities |
1-2 weeks |
| Collection of required documents and reports to prepare the offering prospectus |
2-3 weeks |
| Preparation of documents for the registration at the Federal Financial Market Service (FFMS) |
1-2 weeks |
| Registration at FFMS |
1 months |
| Time required for the disclosure of information after the registration of the offering prospectus, during which the law does not allow to conduct a placement |
2 weeks |
| TOTAL |
12 weeks |
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Issuer basic cost structure (MICEX listing)
| Securities issuance tax |
0,2% of the nominal amount of the issue,
but not more than RUR 100,000.00 |
| Fees to financial consultant, arranger, underwriter and paying agent |
To be negotiated |
| Fees to authorized depositary |
0,00283% of the amount of the monthly average balance in the Central Bank account |
| Fees to arranger of trading |
Placement access charge: Regressive scale linked to the size of the issue at par. Regardless of the size of the issue, the maximum amount of payment cannot exceed RUR 300,000.00 |
| Other costs |
About 0.15 percent of the nominal amount of the issue: costs pertaining to the disclosure of information and investor presentations |
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