The Serbian Oil Industry (NIS) is poised to become the first company to issue corporate bonds on the Belgrade Stock Exchange, as part of the Finance Ministry’s initiative to revitalize the Serbian capital market.
According to a submission to the Belgrade Stock Exchange, NIS will discuss the bond issuance at its shareholder meeting scheduled for November 15. This historic bond issuance will be one of two agenda items for the meeting, although no further details have been provided.
Successful issuance hinges on investor interest. Given NIS’s inability to borrow on international markets, the bond will likely be offered at a slightly higher interest rate to domestic banks and possibly a broader range of investors, according to Vladan Pavlović, an analyst at Ipopema Securities.
“I don’t want to speculate, but anything below five percent would be a big surprise. In the next five years, NIS has about 55 billion dinars in loans that need to be repaid. While I’m not familiar with the rates at which those loans were contracted, available data suggests they are around six percent. It’s possible that part of these obligations will be refinanced through the bond,” he noted in an email.
While specifics about the timing of the bond issuance remain unclear, officials have announced plans for this and other securities to stimulate the capital market in Serbia. The first Exchange-Traded Fund (ETF) in Serbia is expected to launch in the first half of next year, according to Marko Janković, head of the Securities Commission.
He also mentioned that the first issuance of corporate bonds, previously announced by the Finance Ministry, should occur by the end of this year. “It would be overly optimistic to say we’ll have an ETF by the end of the year, but let’s say in the first half of next year,” Janković stated at the “Montenegro Financial Markets” conference in late September.
“We can expect the first corporate bonds by the end of the year, but don’t hold me to a specific month,” he added.
The plan is to bring companies issuing bonds onto the stock market and Janković expressed optimism about the government considering the listing of state-owned enterprises. This move would facilitate further development of the capital market, he said.
He emphasized the need for Serbia to work intensively on increasing both demand and supply in the capital market. “For us, the question of whether the chicken or the egg came first is irrelevant. We need to enhance both supply and demand. We have an intense 12 months ahead of us,” Janković remarked.
Investors in Serbia can expect new investment instruments to emerge both on and off the Belgrade Stock Exchange, though he did not specify what these might entail beyond ETFs and corporate debt, nor when these new instruments might become available.
Declining performance this year
In the first half of the year, the Serbian Oil Industry managed to increase sales revenue, but key profitability indicators (EBITDA) and net profit saw a decline. The company’s profit fell by 61 percent in the first six months, despite a 75 percent year-on-year increase in net profit during the second quarter.
Both the company’s projections and analysts’ expectations have been adjusted downwards due to ongoing renovations at the Pancevo Refinery. Capital investments in the first half of the year more than doubled, amounting to 24.4 billion dinars, with the majority allocated to exploration, production, and refining segments.
