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Challenges persist for corporate bonds in Serbia despite government support

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Corporate bonds in Serbia have yet to gain significant traction despite the government’s efforts to incentivize their issuance this year. Experts argue that the process remains complex, and many companies still favor traditional bank loans as their primary financing source. Corporate bonds offer companies a means to raise funds for various projects, but their adoption is hindered by the prevailing preference for bank borrowing.

In October of last year, Serbian Finance Minister Sinisa Mali announced the expectation of a surge in corporate bond issuances starting from January 1, 2024.

“We anticipate a considerable increase in corporate bond issuances from January 1, 2024, and the Serbian government will support this initiative by covering issuance costs,” he declared. Mali emphasized the government’s aim to encourage companies to explore alternative financing sources beyond commercial banks.

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However, the anticipated government support has yet to yield significant results, with limited response from companies. The underdevelopment and low acceptance of this financing method are evident from the fact that only 10 companies are currently active issuers of corporate bonds in the country, according to data from the Central Securities Depository (CR HoV).

These companies include “AD Mlekara Sabac,” “Borbeni Slozeni Sistemi DOO,” “Energoprojekt Holding AD,” “JP Jugoimport SDPR,” “M. I. Finance DOO Sabac,” “Mediolanum Invest AD,” “PMC Inzenjering DOO Belgrade,” “Spring Up Alijansa DOO,” “Telekom Srbija AD,” and “W. D. Concord West DOO.” Only three of these companies have issued bonds this year, following Minister Mali’s announcement.

Among these, “M.I. Finance Sabac” issued bonds on February 29 this year worth 25 million dinars. Additionally, “W. D. Concord West DOO” issued bonds on March 15 worth over 468 million dinars.

The third company to opt for this financing method this year is “Spring Up Alijansa DOO,” which issued bonds on March 14 worth 14 million dinars.

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Velimir Jovanovic, director of “Mediolanum Invest AD,” which owns several companies issuing corporate bonds, explains that financing through bond issuance is regulated by the Capital Market Law.

“Our company has been utilizing this financing method since 2016. The popularity of corporate bonds has increased over the years,” he states.

Jovanovic highlights the positive experiences with corporate bonds, emphasizing their effectiveness in raising capital and attracting a broader investor base.

However, he notes that the decision to issue bonds ultimately rests with the company’s management, based on its financial needs. Regarding government assistance, he expresses support but confirms they have not utilized it.

“Government support for new financial instruments is welcome. We believe it will encourage other companies to consider this financing option,” he says.

He suggests that bank borrowing remains the preferred option for most companies, limiting the adoption of corporate bonds.

Nenad Gujanicic, chief broker at “Momentum Sekjuritizacije,” explains that the underdeveloped domestic capital market contributes to the limited issuance of corporate bonds.

“It’s logical that corporate bonds are scarce in such an environment. The issuance process is complex and costly, leading to limited interest,” he notes.

Gujanicic recalls the success of companies that issued “covid bonds” during the pandemic when interest rates were low, and the National Bank of Serbia (NBS) supported bond purchases.

“Several state-owned companies took advantage of this program and issued corporate bonds,” he adds.

Gujanicic suggests that larger corporations typically prefer bank loans due to easier access to financing.

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