ACRA Rating Agency has prepared a research called ‘Regional bond market: reasons for stagnation’ which reviews the outcomes of subfederal and municipal bond placement in 2019. The research is the result of expert and analytical cooperation between ACRA and the Roscongress Foundation.
“Acting as a leading non-financial development institution, the Roscongress Foundation nurtures a wide range of research on business events agenda. The ACRA’s research based on the dynamics of regional bond market objectively and in detail considers the main advantages and disadvantages of this investment instrument and is targeted at both regional authorities and all those who are interested in finance,” noted Chairman of the Board and CEO of the Roscongress Foundation Alexander Stuglev.
ACRA analysts have come to a conclusion that Russian regions are becoming less interested in bonds. In 2019, 15 bond issues were placed totaling RUB 96.75 billion. At the same time, the overall placed amount hardly changed compared to 2018, but the number of new placements in 2019 dropped by one forth. Last year, only nine regions and two municipalities went to the public bond market, while in 2018 new bond issues were made by 14 regions and one municipality, and in 2017 – 29 regions and three municipalities.
According to ACRA analysts, regions’ interest in bond market is declining despite favourable conditions that exist for them. In 2019, the profitability of subfederal bonds for the first time went down to the lowest values for the whole period analyzed (since 2013). Last year, the weighted average return of regions’ initial bond placements was 7.2 per cent per annum, while in 2013, before the crisis, it was 8.1.
“Regions had almost no need in loan-based funding, because their income was growing. Last year, the number of regions implementing the budget at a deficit nearly halved compared to 2017,” commented Elena Anisimova, head of ACRA’s Sovereign and Regional Ratings Group. She noted that under the current circumstances Russian regions in need of funding prefer bank loans that are more easily manageable due to the possibility to close them in advance or decrease the rate.
‘Regional bond market: reasons for stagnation’ research is available in the ROSCONGRESS.ORG Information and Analytical System.