Yields of 8% per annum in dollars or 25% per annum in hryvnia will be of interest to many investors. Such earnings can provide investments in corporate bonds. But this is only half the truth about this investment instrument.
Who issues bonds
Corporate bonds are issued by legal entities to finance their activities. Investors, buying such bonds, actually lend the company interest.
This tool allows companies to diversify sources of borrowing, attract financing cheaper than banks offer, and take out long-term loans with the ability to pay interest only before the end of the term, rather than the body of the borrowing.
Domestic banks are also among those that issue corporate bonds. At the same time, interest rates on bonds are higher than interest rates on deposits in the same institutions. For example, dollar bonds of Ukreximbank can be bought with a yield of 8% per annum. And the rate on the dollar deposit in the same bank is only 2.1% per annum.
According to experts, bonds have several advantages: they have a longer maturity and they allow you to get the required amount faster. In addition, there are regulations and requirements of the National Bank on the size of liabilities and deposits of the population. Funds raised through bonds will not fall under these requirements.
But a company that has decided to place securities must be inspected by the regulator – the National Commission on Securities and Stock Market. The process of issuing bonds and information support requires costs.
“It takes about three months to issue bonds. The main costs are audit reports (annual and last quarter), preparation of issuance documents, state duty and a number of other insignificant expenses, ”Dmytro Bohodukhov, Director of CardService, told the Ministry of Finance. Under such conditions, in his opinion, it is advisable to issue bonds in the amount of UAH 10 million.
Currently, bond issuance is not a very popular way to raise funds for Ukrainian companies. “The investor is looking for securities of reliable issuers with a yield of 2-4% higher than for IGLBs,” explains Yevhenia Hryshchenko, Head of ICU Group’s Customer Brokerage Department. And such profitability is unfavorable to many borrowers.
At the same time, those who want to invest in such a tool still have a choice. Last year, the NSSMC registered 88 issues of corporate bonds. Among the companies whose bonds are currently in circulation are Taskombank , NNEGC Energoatom, PJSC Pharmaceutical Company Darnytsia, Ukrposhta, PJSC Ukrtelecom, and Nova Poshta.
During January-May this year (according to the latest report of the NSSMC), 40 issues of corporate bonds worth UAH 14.36 billion were registered. Compared to the same period last year, the volume of registered issues of corporate bonds increased by UAH 11.6 billion.
How much do investors get
On November 30, the placement was conducted by ESKA Capital and TAS-Logistics. The maturity of the bonds of both companies is 5 years, and the yield on the former is 17%, and on the latter – 16.5% per annum. Also on December 1, Alfa Leasing held another issue of its bonds. The yield on these securities is somewhat more modest – 13% per annum. In addition, you can now buy RUSH bonds (the company owns a chain of EVA stores) with a yield of 14.5% and Best Leasing – they pay 15% per annum.
However, this level of profitability is not the limit. Cardservice bonds can earn from 25% per annum, and the maturity – from 3 months to 1 year. Ukreximbank bonds give 8% yield in US dollars.
For example, the average rate on a term hryvnia deposit per year is now 9.22%. And the most generous banks offer a maximum of 12%. Rates on hryvnia IGLBs do not differ much either – at the last placement the yield on annual bonds was 10.75%.
How to buy
In order to buy corporate bonds, you need a securities account. You can open it in a brokerage company, which is at the request of the client and will redeem the required number of bonds.
Issuers do not care through which broker the investor buys bonds. The main thing is that this broker is accredited on the exchange on which the issue takes place.
The procedure for opening an account is not complicated, but it can still take several days. In particular, the broker must provide documents (passport and identification code) and enter into a service agreement with him.
Brokers charge a commission for intermediary work. In particular – for the purchase of bonds, their redemption, interest and, in fact, for opening and maintaining an account. Therefore, these issues should be discussed with the broker in advance. For example, the Ministry of Finance collected the cost of service from several brokers.
The main commissions of brokerage companies
| BROKER | Opening an account | Account maintenance | Purchase | Payment of coupon income | Repayment |
| ICU | Free | Free | 200 грн. | Free | Free |
| University | Free | Free | 200 грн. | Free | Free |
| Freedom Finance Ukraine | Free | 30 UAH / month (in the absence of operations) | 0.2% (min. UAH 200) | 0.5% (min. UAH 20, max. UAH 250) | 0.5% (min. UAH 20, max. UAH 250) |
| I-nvest | 200 грн. | UAH 50 / month | 0.05% | 50 грн. | 50 грн. |
Thus, although any broker will have to pay, in some cases all the costs of purchasing bonds will be UAH 200, which, although it will reduce the yield, is not significant. Commissions for the purchase of IGLBs are approximately the same.
What are the disadvantages
The disadvantages of investing in corporate bonds are much greater. Consider them in more detail.
Low liquidity
As part of a series on real investment, the Ministry of Finance talked about the mechanism of buying and selling stocks and bonds in foreign stock markets, where it is enough to press a button on a computer screen and the assets will be sold almost immediately. The editorial office also analyzed in detail how to sell IGLBs ahead of schedule . As brokers explained, you can get rid of government bonds on the same day as the need arises. However, these rules do not apply to corporate bonds.
As Dragon Capital’s debt securities sales specialist Serhiy Fursa explained to the Ministry of Finance, the corporate bond market does not actually exist now. That is, if an investor bought securities and decides to sell them, it is almost impossible to find a buyer.
“The key investors in the corporate bond market are banks, and their reservation conditions lead to the reluctance of participants to buy corporate bonds,” says Yevhenia Hryshchenko. In other words, because the vast majority of bonds are deposited in the reserves of financial institutions, individuals who buy securities much less often, it is difficult to find each other to buy or sell bonds. The process is complicated by the imperfect infrastructure of the stock market.
Some corporate bond companies create their own secondary market. In particular, as Dmytro Bohodukhov explained, CardService can redeem its bonds if necessary. In this case, the investor will lose profitability, but if necessary, will get their money.
Risk of losses
In contrast to deposits , the return of which is up to 200 thousand UAH. guaranteed by the DGF, and IGLBs, which are guaranteed by the state, have no guarantees for corporate bonds. More precisely, the guarantor is his own company that released them.
Also, explained to the Ministry of Finance an employee of the broker “I-Invest” Sergei Goncharenko, there is a risk of restructuring obligations under such bonds. That is, deferring the payment of coupons and repayment dates in a manner that the company will agree with the main holders of such debt.
In other words, if the company starts to have problems, it will come to the banks that bought the most of its bonds and ask for better refund conditions. No one will ask the opinion of individuals who hold a meager share of bonds.
High entry threshold
In most cases, investing in corporate bonds requires a fairly large amount. In particular, through Freedom Finance Ukraine, clients can buy Best Leasing bonds in the amount of UAH 1 million. and dollar bonds of Ukreximbank from $ 200 thousand.
Brokers can also set their own restrictions. In particular, Serhiy Honcharenko said that I-invest is ready to buy corporate bonds for its clients in the amount of UAH 1 million, as such an operation is not the main activity of this broker.
It is possible to buy corporate bonds for much smaller amounts, but it will still be about tens of thousands. For example, the securities of RUSH and CardService LLC are sold from UAH 50,000, and ESKA Capital from UAH 100,000.
Taxation
Income from corporate bonds is taxed in the same way as interest on deposits: 18% personal income tax and 1.5% military tax. Therefore, looking at the specified yield of securities, it is necessary to subtract almost a fifth.
Is it worth buying
According to investment analyst Freedom Finance Ukraine Denis White, it is advisable to choose corporate bonds in the short term. “With the current low rates of government securities, it makes sense to take corporate risk to increase the return on investment. However, I recommend investing in corporate securities for up to a year with the possibility of further investment in government securities, subject to a decrease in their market value, “he said.
Serhiy Honcharenko emphasizes that such a tool is suitable only for experienced investors who are exposed to high risk and understand the financial analysis of enterprises.
In most cases, the decision to purchase corporate bonds is a traditional “fork” of fear and greed for the investor. Willingness to take risks depends on what prevails at the moment. But in any case, you should invest in this tool only part of your savings, not risk it all.
Alexey Pisarev