Telekom Serbia’s announcement that it will issue corporate bonds worth almost 200 million euros is good, ie rational, economists believe, but the question is who will find these securities interesting to buy and whether the state will be the one if there are no interested private investors which will buy bonds and help Telekom.
This company announced two days ago that the market conditions for issuing bonds have been met.
The plan of our largest telecommunications operator is to issue bonds worth 200 million euros with a term of five years and an interest rate of up to 3.25 percent, plus a three-month bill.
This, as they stated, enabled the first investors in Telekom bonds to be renowned financial institutions, and the funds collected from the bonds will be used, they pointed out, to finance the company’s business needs, as well as to refinance existing obligations.
According to Nenad Gujanicic from the brokerage house Momentum, this decision of Telekom is rational because it aims to diversify a very high debt to banks and other creditors.
However, as he said, that idea would be very difficult to realize if the program of issuing corporate bonds was not part of the package of measures of the Government for mitigating the economic effects of the pandemic.
“In order to improve the liquidity of economic participants, primarily large companies, mostly those where the state has the main say, the Government has simplified the procedure of issuing corporate bonds in the period of six months after the state of emergency and announced the possibility for the central bank to buy them from investors who are the first hand in this business,” said Gujanicic for Beta.
At the beginning of April, the Government of Serbia passed a decree which simplified the procedure for companies that want to issue corporate bonds as a way of raising capital.
Explaining that at the time, the Minister of Finance, Sinisa Mali, said that the state “shortens” the procedure from 77 to 17 days and that the entire cost of issuing bonds will no longer cost the company 80,000 euros, but eight times less.
According to Gujanicic, the idea of issuing corporate bonds exists in the EU, where the European Central Bank buys bonds of European corporations on the secondary market in order to improve their liquidity and cheaper borrowing, but he notes that we do not yet have a corporate bond market or corporations such as Telekom, that have elements of a corporate organizational form.
“The main problem of central banks that buy these bonds, both in Europe and even more so in Serbia, is that companies are discretionarily offered cheaper financing and thus undermine their interest in better business,” says Gujanicic.
Therefore, he notes, the central bank in Serbia can very easily end up in a situation where it has a huge portfolio of problematic securities that it cannot collect when they mature.
He is afraid that if such jobs of the NBS become widespread and put into practice, we could have a reincarnation of the primary issue, already seen in the 1990s.
Professor of the Faculty of Economics, Ljubodrag Savic, says that it would not be good for the state to buy those bonds because, whatever they say, the state is still the owner of Telekom.
“The state has sold Telekom twice so far, for the first time in 1997, and 49.8 percent of shares, after which it sold it again. It can be called a joint stock company or whatever, but it is essential that it is state property,” Savic points out.
He explains that companies issue bonds for several reasons, the first being that they want to manage their debt in the sense that they set conditions, they do not need a mortgage, nor do they have to ask the bank.
“In developed countries, this is the basic way for large companies to get fresh capital. In Serbia, that is mostly not the case, it has been announced now with austerity measures, and I was happy, but I am not happy about the fact that this is about pouring from the hollow into the empty. If the state is the owner, then there are other ways to help Telekom,” Savic emphasizes.
If, as he says, figuratively speaking, they would imagine that a private person would buy Telekom bonds, like Miodrag Kostic, then that would be a sure confirmation that Telekom pretends to be because private capital will not risk buying securities that have a nominal value, and that in two or three years it cannot be serviced, to provide a yield.
Savic, however, believes that the state will be involved “in one way or another”.
“I am not sure that others, especially foreigners, could say that Telekom is such a good company. I don’t think it’s bad or catastrophic, as some want to show, but it’s not great, like everythings where the state mixes its fingers,” Savic points out.
He says that, having in mind that Telekom is quite indebted and has high acquisitions, everything seems to mean that the state will intervene. Whether they will give money directly or differently, I would not be surprised if some other state-owned companies, at the urging of the state, buy part of the bonds, or some banks,” Savic notes.
When the beginning of the issue of corporate bonds was announced in the spring, the announcements of the officials showed that the state would buy bonds of companies directly from the budget, including public and state companies.
The President of Serbia, Aleksandar Vucic, once said in April that “we had the money to invest in Air Serbia, but they did not give it to us because we would violate competition at the European level. We will support Air Serbia with recapitalization or corporate bonds,” he said at the time.
After the austerity measures were announced, the Minister of Finance Sinisa Mali, in a TV show, when asked how much money the state will buy those bonds for, answered that it should be seen which companies will offer bonds, “let’s see what the yield is and that is it worth it.”
It may be too early to say, but for now, Danas and the public are left without an answer from his Ministry to the question – will the state help Telekom by buying bonds?
