On June 30, 2020 social bonds made their debut on the Moscow Exchange (MOEX) with collateral by OOO SFO Social Development. Two senior exchange-traded and one OTC tranches were issued worth 5.6 billion roubles in total. Amortisation will take place four times a year throughout the maturity period of 6.5 years.
Supported by Project Financing Company, one of VIS Group’s subsidiaries, BCS Global Markets acted as originator and manager of the maiden placement of social bonds with pre-issuance verification, included into the sustainable development section of the Moscow Exchange. The full issue has been independently verified by the rating agency Expert RA for compliance with ICMA’s Social Bond Principles.
Debt obligations will be primarily funded through cash flows received by the issuer from a private partner in line with a loan and a credit facility, which, in their turn, will be serviced through subsidies from the government of the Republic of Sakha (Yakutia) and the city of Yakutsk. Collateral is comprised of claims to public PPP partners and PPP facilities.
Bookbuilding was done at the issue price. Double oversubscription was registered for Tranche A during bookbuilding. The spread between Tranche B’s YTM and Sakha (Yakutia) bonds’ YTM was around 600 basis points. The lower Tranche M was fully purchased by originators.
The Republic of Sakha (Yakutia) is a region with a high potential in natural resources. Yakutia is an active member of the Russian DCM market, with eight issues with a total worth of 42 billion roubles without a single default. The Republic of Sakha has an international rating BBB- from Fitch, as well as ruAA- from Expert RА. By issuing social bonds, the Republic of Sakha has blazed the trail in structured finance products, particularly in secured bonds, highlighting the Republic of Sakha’s innovative attitude towards complex financial instruments to attract public market investment to the projects managed by the Republic of Sakha.
Expert RА rating: ruА.sf for Tranche А, ruBBB+.sf for Tranche B.
Here is what Sergey Tsymbarevich, Head of Capital Markets at VIS Group, had to say:
It is VIS Group’s latest innovative financial instrument that seeks to raise investment into infrastructure projects in the public market, building on the first PPP bonds issued by VIS Group back in 2017. This time, however, we have joined hands with BCS Global Markets and other partners to set a precedent through the offering of bonds that are essentially infrastructure bonds. While there has been a lot of debate about the need to issue such instruments, our Group is taking practical action to bring them to the market, and this particular issue is unique in so many ways. VIS Group will continue to further the financial market in Russia through more precedents and new financial instruments, including infrastructure bonds.”
“The debut placement of social bonds in Russia is the latest in a series of steps to forge a win-win relationship between the business community and the government. The Republic of Sakha has blazed the trail for other Russian regions in structured finance products, particularly in secured bonds, highlighting the Republic of Sakha’s innovative attitude towards complex financial market instruments to attract investment in the public market to the projects managed by the Republic of Sakha. Thanks to the arrangement, investors will be able to contribute to addressing the region’s important social goals,” said Aleksey Kupriyanov, Head of DCM at BCS Global Markets.
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