The announcement of “Telekom Serbia” that it will ask the shareholders for support to issue corporate bonds worth 200 million euros in dinar equivalent has influenced the public to open a discussion about how risky this business is for the National Bank of Serbia (NBS).
How did the National Bank appear in the whole story about corporate bonds?
So it was she who made the decision in May that gives her the opportunity to buy corporate bonds from commercial banks on the secondary market.
Can the NBS buy Telekom’s corporate bonds?
It can, because it is explicitly forbidden only to “directly buy securities issued by state-owned entities, ie in which the state has a controlling share”.
As the NBS appears as a buyer on the secondary market, it would not actually buy corporate bonds directly from Telekom, but possibly from the commercial bank that bought those bonds as the primary buyer.
Is it certain that the NBS will buy “Telekom” bonds?
It is not, as it is not yet certain, that “Telekom Serbia” will get the support of shareholders to issue those securities, to which it would additionally borrow about 200 million euros.
On the other hand, the largest shareholder of “Telekom” is the state, which, as follows from the statements of President Aleksandar Vucic and Minister of Finance Sinisa Mali, strongly encouraged large state and private companies to issue these securities.
“We will have more actions with corporate taxpayers in order to strengthen a part of our companies, such as Putevi Srbije or EPS, but also other private companies that want to encourage exports and invest in the region,” Vucic said in mid-June.
How good is that for the National Bank?
“No business of buying debt securities is completely safe, even if they were government securities, but certainly corporate bonds carry an increased risk,” stock market analyst and chief broker of “Momentum Securities” Nenad Gujanicic told Nova.
In particular, he warns, when it comes to companies that do not exist for many years on the stock exchange.
“Otherwise, they would have to implement the principles of corporate governance, and more importantly, through the interest of primarily professional investors, they would receive feedback every day on the quality of business decisions. This would make the investment profile of the company much clearer for the potential buyer of these bonds,” explains Gujanicic.
The NBS published a “polemical statement”, in which it listed, as they stated, the truths and misconceptions about corporate bonds in our public.
When it comes to the remark of experts that the risk is that the market of such bonds does not actually exist, nor has it ever existed in Serbia, the NBS answers that now is the right time to encourage the creation of that market.
“The current environment of historically low interest rates on the dinar money market provides an opportunity for domestic companies to diversify their sources of financing, as well as to finance their projects and potentially new investments on more favorable terms, as well as to use the opportunity to foreign exchange risk, refinance existing liabilities,” the NBS announced.
On the other hand, if the National Bank buys bonds of a company on the secondary market, and that company fails to return the money it received through the bond issue, the National Bank loses the money it invested in the bonds, as all risk is transferred from primary to secondary buyers, in this case the NBS.
How much should the NBS spend on corporate bonds?
In a statement “Corporate Bonds: Truths and Misconceptions”, the NBS stated that, in order to guarantee the stability of the monetary system, a number of restrictions were set for operations with these securities, thus limiting the total amount of money it can spend on the secondary bond market.
“The highest total nominal amount of an individual issue or tranche of corporate bonds that can be accepted in monetary operations is 70% of the total nominal issue value of one issuer, and the highest total nominal amount of corporate bonds of one issuer that can be accepted in monetary operations is 91.6 million euros,” announced the NBS.
This means that the NBS is allowed to allocate a maximum of 91.6 million euros, say, “Telekom”, while they are planning a show worth a total 200 million euros.
“Telecom has already borrowed a lot. Is it wise to lend him more money? ”
Economist and vice president of the Social Democratic Party Goran Radosavljevic calculated that “Telekom” plans to borrow as much as it overpaid when buying two cable operators: “Copernicus” and “Radius Vector”, while the vice president of the Party of Freedom and Justice Marinika Tepic held several conferences for media in which she spoke exclusively about suspicions that money from “Telekom” is being poured into companies and individuals close to the government, Nova reports.
