Pi Capital
Date of publication: 10 December 2019
MARKET SIGNALS, december 10 2019
 Today we will look at one debt security as investment ideas for this week: MKB

 IDEA #1: MKB Among the papers that have lagged a bit lately, we will pay attention to one of the most distant Russian Eurobonds - the sovereign dollar issue with maturity in 2042. The current spread in the yield of this paper for issue with maturity in 2029 is 75 bp. p. that is above the average for the last 12 months (54 bp). 

Last week, the head of the government debt department of the RF Ministry of Finance, Konstantin Vyshkovsky, in an interview with Bloomberg, said that Russia is unlikely to enter the foreign borrowing market in 2020. This is due to restrictions imposed by the United States at the end of August. At the same time, next year, USD 3.5 billion and Euro 750 million Euros are due for redemption. Under these conditions, the demand for existing Eurobonds will receive an additional impetus. 

Among the securities in euros, we will pay attention to the senior issue of the ICD with maturity in 2024, which became one of the leaders in price growth last week. Against the backdrop of negative benchmark returns (comparable in duration to Bunds trading with a yield of minus 0.6%), the yield offered by the issue (3.4%) looks interesting not only in terms of absolute values, but also stands out against its counterparts. MKB is a medium-sized non-governmental bank, conducting business mainly in Moscow and the Moscow Region. According to the results of the third quarter of 2019, the bank took 6th place in terms of assets (2.2 trillion rubles) in the Interfax-100 ranking. It is a public company with a current capitalization of $ 2.7 billion at Mosbirz.

 The controlling shareholder is ROSSIUM Concern LLC (56.07%), the group’s majority beneficiary is Roman Avdeev. At the end of November, the issuer disclosed its IFRS financial statements for 9 months of 2019. Although the bank reduced its net profit by 35% yoy in 9 months of 2019, in the third quarter this indicator amounted to 9.7 billion rubles, which is 32% more than the result for the third quarter of 2018. the currency revaluation of perpetual subordinated Eurobonds denominated in foreign currency continues to be provided, which is due to the appreciation of the ruble compared to the end of 2018, ”the ICB said. 

The senior unsecured issue with a maturity of 02.20.2024 in the amount of EUR 500 million was placed in February this year. Emission Market - Eurozone. There are no options for early recall or revision of the coupon level before the end of the paper circulation term. From the moment of placement, the price dynamics of the Eurobonds are generally in line with the market. The decrease in the yield of the issue occurs mainly due to the narrowing of the premium to the underlying asset (Bunds). 

Alexey Shternshis 
Joint Managing Director 
Capital Pi

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