The Fund's investment activities are intended for high net worth individuals who are considered to be sophisticated investors that are looking for a fund that aims to protect the capital invested whilst at the same time generating above average returns.
Attention! This investment falls outside AFM supervision. No license and no prospectus required for this activity.
This will be achieved through investments in public and corporate stocks and bonds, financial instruments, including futures and options, and certain types of real estate, although this type of investment will not represent anything other than a small percentage of the total investment fund. The nature of this alternative investment fund is that it is able to react swiftly to ever changing possibilities and risks in the markets and as such it
is assumed that other asset classes will be traded in the future if this is seen as being beneficial to the investors by the Fund managers. In addition, new sister Funds may be established in the future that will have a more specific investment focus if this is required by investors.
FULL DETAILS OF THE INVESTMENT POLICY CAN BE VIEWED DIRECTLY
Whilst the Fund aims to generate above average returns for Investors, the main priority of the Fund is primarily the safety of the funds that have been entrusted to us by our clients. It is for this reason that one of the main targets for investment is in Europe's largest firms. In addition, the priority given to debt instruments and, where appropriate, real estate is also considered to be an important element of the investment portfolio. At the same time we do not forget that in addition to minimizing the risk for our investors, we need to maximise the value of the investments made by our clients, and repay the trust demonstrated in us to manage these conflicting forces on their behalf.
For the purpose of maximising returns made by the Fund our managers and analysts constantly monitor the market situation in all the markets in which the Fund operates and any possible new markets. With the constant flow of informed market intelligence, decisions are made and assets traded between all the markets in order to ensure the best investment profile to maximise return and minimise risk. This technique ensures the maximum possible growth of the value of the assets but also makes it possible to hedge the possible risks of changes in market prices.
Our team consists of professionals with extensive experience in the Russian and global stock and commodity markets. Most have worked in large investment houses and our analysts are included in the TOP10 according to Bloomberg. With this extensive experience the team at Capital Pi aim to surpass your expectations and achieve good but safe returns on your investments through us.
The strategy is based on operation in debt markets of the G20 countries. Funds are invested in highly liquid, supranational, sovereign, municipal and corporate debt securities with an investment grade credit rating (at least BBB-) according to the key credit rating agencies (Moody’s, Standard &Poor’s, Fitch).
The investment instrument in this strategy is eurobonds from a limited range of issuers. In the selection of issuers to be included in the portfolio, the key factors are its balance across economic sectors and across the credit quality of issuers. The share of one investment instrument can be up to 25% of the overall portfolio. The key factor enhancing the expected return of this investment product is the opportunity to raise funds against securities in the portfolio at market rates. Thus, the expected return at portfolio maturity can be higher if borrowed funds are used.
This strategy is based on expectations of the Russian government bond curve. Normally, the yield curve is a monotone increasing upward-convex curve. It means that, first of all, the yield grows with time (positive slope) and, second, the rate of yield change decreases in time (tends to zero).
Today we will look at one debt securitiy as investment ideas for this week: Sovkombank
On September 10, 2020, Fitch Ratings changed the outlook for Sovcombank's long-term issuer default ratings (IDRs) in foreign and national currencies from negative to stable. "The revision of the forecast of the Long-term IDR reflects the weakening of the pressure on the credit profile of Sovcombank, caused by the pandemic, the fall in oil prices and, as a result, the economic downturn in Russia," - the message says. Agency analysts point out that the bank's profitability remains good.
In their opinion, this will allow Sovcombank, despite the moderate size of capitalization, to cover credit losses even in the event of a longer and more serious recession than is currently expected.
Sovcombank issues, as well as other subordinated Eurobonds of Russian banks, have not yet won back their covid losses. For example, the z-spread of an SKB issue maturing in 2030 (and a call option in 2025) now exceeds 700 bp. p., while in February it dropped to 450 bp. n. The chart below shows a map of the international subord market with BB- / B ratings. As you can see, the SOVCOM 30 issue looks very interesting even against the background of securities that are inferior to it in terms of rating (the rating of the SKB Eurobond from Fitch is at BB-).
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt securitiy as investment ideas for this week: VEON Holdings B.V.
Last week, a new placement took place in the ruble section of the Russian Eurobond market - the second issue this year was placed by VEON Holdings B.V., a subsidiary of the VEON telecommunications holding. 5-year Eurobonds for RUB 10 bln. were placed at 6.5%. Recall that in June this year the company also placed 5-year Eurobonds for 20 billion rubles with a coupon of 6.3% per annum.
The sector of ruble-denominated Eurobonds is usually somewhat overshadowed by investors' interest, which is due to the over-the-counter nature of trading in these instruments, as well as the high minimum lot (10 million rubles). State-owned companies play the leading role among issuers here: for example, Russian Railways and RusHydro have 5 and 4 issues in circulation, respectively. The private sector is represented mainly by 4 issues of Alfa-Bank (the market map and the list of ruble Eurobonds issued by issuers with Russian risk are given on pages 21-22 of this review).
It should be noted that one of the factors increasing the comparative attractiveness of ruble Eurobonds is the cancellation from 2021 of tax incentives for coupon income on OFZs and local ruble corporate bonds issued in 2017-2019.
The duration of the Russian ruble corporate bond market is traditionally small (about 3 years), in particular, due to the fact that many securities have put options. And this is not to mention the fact that the level of exchange liquidity of most ruble-denominated debt securities placed on the local market leaves much to be desired. In this context, the Eurobond, for example, Alfa-Bank maturing in January 2025, which does not provide options for early withdrawal and / or revision of the coupon level, in our opinion, deserves attention. Now on this security, you can fix the yield of 6.5%. Due to the fact that this issue was placed relatively recently - in January this year - the coupon for it is relatively small (6.75% per annum), which is important from the tax point of view. Thus, the low coupon / high yield ratio of Alfa-Bank's ruble Eurobond maturing in 2025 looks interesting in our opinion.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at two debt securities as investment ideas for this week: Howmet Aerospace and Petropavlovsk Plc
The current reporting season is of particular interest in the light of the fact that companies are reporting data for the 2nd quarter - which turned out to be very turbulent due to the pandemic. For the American company Howmet Aerospace, the reporting for the second quarter of 2020 is doubly interesting, since this is the first quarter after its reorganization. April 1, 2020 aluminum manufacturer Arconic Inc. completed the division of its business into two separate companies. The Rolled Products, Aluminum Profiles and Building Systems division is renamed Arconic Corp. The rest of the operations, including the production of jet engine components, parts for the aviation and defense industries, remained with the existing company, which was renamed Howmet Aerospace.
The reorganization of the company does not allow direct comparison of the current data with the results of previous years, however, it can be noted that the market does not expect Howmet Aerospace's free cash flow to go into negative territory at the end of this year. This will be facilitated by a program to cut costs by $ 100 million, the refusal to pay dividends and a two-fold reduction in CAPEX.
In the second quarter, Howmet Aerospace's interest payments (including pension adjustments) amounted to $ 169 million, while the adjusted operating cash flow was only slightly higher at $ 200 million. However, some adjustment needs to be made for the special conditions of the 2nd quarter of 2020. when part of the company's production was actually closed due to the unfolding pandemic.
As of June 30, 2020, Howmet Aerospace reflected the cash on its balance sheet in the amount of $ 1.3 billion. In addition, the company has opened a credit line (revolver credit) in the amount of $ 1.0 billion, which could potentially cover the liquidity deficit. As for the debt repayment schedule, the first large payments ($ 1.2 billion) are expected only in 2024. Howmet Aerospace's weighted average debt maturity is 6.5 years.
However, due to the uncertainty generated by the current crisis, credit agencies differ significantly in their assessments of Howmet Aerospace's credit quality. While S&P and Fitch hold an "investment" rating for the issuer and its obligations, Moody’s agency is three steps lower (Ba3). Moreover, Moody’s even has a "negative" outlook on its rating. Note that the Big Three revised their forecasts in April for the already split company. And although the probability of default by Howmet Aerospace within the next year, according to the Bloomberg risk model, is only 1%, the probability of default within the next 5 years (6%) looks too high for a company with "investment" ratings.
Since Howmet Aerospace is capitalized at approximately 75% of the undivided Arconic Inc., most of Arconic Inc. (including Eurobond maturing in 2037) passed to Howmet Aerospace.
The senior unsecured Eurobond of the company with maturity in February 2037 in the amount of 625 million dollars was placed in January 2007 on the world market. The largest holder of the Eurobond, according to Bloomberg, is Allianz SE (3.3%).
Classic call options are not provided for this issue, however, the makewhole call option is prescribed. Recall that this type of call allows the borrower to withdraw the issue before maturity, paying the holder a certain compensation for this, which is expressed in the form of a predetermined premium in yield to the underlying security (UST comparable in terms of maturity is used). If the issuer decided to withdraw this Eurobond on the makewhole call option now, he could do it at a price of 173% of the nominal.
There are no options for revising the coupon level (5.95% per annum). The coupon is paid twice a year: February 1 and August 1.
As you can see in the chart below, the dynamics of the Eurobond price generally corresponds to the index of US second-third tier corporate bonds (LF98TRUU). It should be noted that the normalization of the situation in the economy, and, in particular, in the American aircraft industry, can contribute to a further narrowing of the credit spread of the issue.
The minimum lot for the issue corresponds to par and amounts to USD 1,000. The Eurobond is serviced by NSD and is available only to qualified investors. Note that this issue is included in our portfolio of Rentier-Global.
On August 17, Fitch upgraded the issuer default ratings of gold mining company Petropavlovsk Plc and its senior unsecured debt from B- to B. The rating outlook is stable. According to Fitch analysts, the rating upgrade is due to a significant strengthening of Petropavlovsk's financial profile due to improved operating results, high gold prices, as well as a slight decrease in the company's debt burden. For our part, we note that at the end of June this year, S&P also improved its issuer rating - also from B- to B with a "stable" outlook.
The corporate conflict at Petropavlovsk Plc has so far prevented its November 2022 Eurobond even approaching its February levels, despite a rally in the gold market. As Fitch notes in its press release: "Frequent and ongoing changes in the company's shareholder structure, board of directors and management limit the visibility of its future strategy and financial policies, and this limits the company's rating." Meanwhile, we note that now on the issue it is possible to fix the yield at a level above 6%, while, according to the Bloomberg risk model, the probability of default of the company's Eurobonds during the remaining term to maturity is less than 2%.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Volkswagen AG
Against the backdrop of a weakening dollar against the world's leading currencies (the DXY index has been at its lows since May 2018), we decided to look at the maximum profitability offered by instruments from high-quality borrowers in euros. It should be noted that the weakening of the dollar is also facilitated by the decrease in the dollar's advantage in yield. The rate spread on 10-year US and German government bonds, adjusted for inflation, fell to the lowest in the last 7 years.
The highest yield in the segment of Eurobonds is traditionally offered by the so-called "perpetual" issues. If we exclude issuers from the financial sector and consider sufficiently reliable borrowers, then the focus of attention is immediately drawn to the line of Eurobonds of one of the world's largest automakers - Volkswagen AG. For example, the company's issue, placed in June 2018 with a volume of 1.5 billion euros and a coupon of 4.625% per annum, now offers a yield to the next call in June 2028 at the level of 3.6%, which seems interesting against the background of zero deposit rates in single European currency.
The company has already provided data for Q2 2020, which has proven difficult amid the unfolding pandemic. However, analysts still expect a fairly confident recovery in the auto concern's financial performance in 2021 (see table below). In addition, we note that unlike, for example, American automakers and despite VW's extensive presence in China, the company's net operating cash flow is not expected to go into negative territory this year.
Although the company is actively increasing its debt, its net value remains in the negative zone (-18.8 billion euros in the second quarter of 2020). With annual interest payments of EUR 2.5 billion, the automaker's adjusted operating cash flow over the past 12 months amounted to EUR 24.5 billion as of June 30, 2020. In 2020-2021 VW has to pay off debt of 9.1 billion and 18.3 billion euros, respectively, while as of June 30, 2020, the volume of cash and cash equivalents on its balance sheet amounted to 61.3 billion euros.
In the current crisis, which hit the auto industry in the first place, rating agencies have downgraded their forecasts for VW. However, the company's ratings remain at "investment" level with a certain margin. The probability of default by Volkswagen AG, calculated by Bloomberg, also slightly increased. For example, the probability of default has increased from 1.2% to 3.5% over the next 5 years. Nevertheless, even the increased value looks, in our opinion, quite moderate.
Volkswagen AG is an active issuer of perpetual bonds. Currently, there are 10 issues in circulation, including the junior subordinated Eurobond, placed in June 2018 with a coupon of 4.625% per annum. The issuer is the concern's subsidiary, Volkswagen International Finance N.V. At the same time, it is stipulated that the bonds of the issue are unconditionally and finally guaranteed on a subordinated basis by the Volkswagen Group. Compared to senior debt, the "perpetual" issue has ratings two notches lower, which, however, still allows it to correspond to the "investment" category.
As with most Euro bonds, the coupon for this issue is paid once a year (June 27). The nearest call option on the security is scheduled for June 2028, further calls will follow once a year until 2168. If we estimate the probability of the next call option being exercised in 2028, then it is worth noting that the only "VW Eurobonds were recalled on the first call. According to the current repayment schedule, in 2028 the company will have to pay off a debt of 2.0 billion euros and the repayment of the "eternal" paper in the amount of 1.5 billion euros from this point of view should not create any problems.
Since the Eurobond is "perpetual", the main risk associated with it has to do with coupon payments. The fact is that this bond is "hybrid", that is, it has the qualities of both interest-bearing (debt) and equity securities. As a result, such bonds allow borrowers to defer interest payments without violating their obligations (in other words, non-payment of a coupon does not entail a technical default of the issuer). However, the deferred interest on the issue is cumulative. Note that unlike the "perpetual" Eurobonds issued by banks, the VW issue is not provided for write-off to compensate for losses.
Compared to late February levels, VW's current release price (perp) is 8 figures lower. Note that the issue looks quite competitive among the securities of the "investment" rating, denominated in euros.
The VW (perp) issue is serviced by NSD and is only available to qualified investors. The minimum lot for a Eurobond is equal to the par value (100 thousand euros).
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Southwestern Energy Corporation
The dynamics of the yield on the index of high-yield American corporate bonds LF98TRUU, which is literally one step away from its dock levels (see the chart below), prompted us to pay attention to the Southwestern Energy Corporation (SWN) Eurobond due in 2026. Although in terms of price, this issue has already overcome the consequences of the current crisis, its ratio of risk and profitability, in our opinion, is still very interesting.
Southwestern Energy is a somewhat unusual company in the sense that, unlike most other global producers, its problems began much earlier this March. SWN is a natural gas producer in Texas (USA). It must be said that the "shale" revolution, global warming (the past winter became the warmest in the United States over the past 140 years), and, more recently, the slide of the US economy into recession led to a steady decline in natural gas prices. As a result, since 2017, SWN's exchange capitalization has decreased by 3 times.
Along with the downward pressure on the gas market, the current crisis has added problems to the company. So, for the first time in a long time, SWN's operating profit in Q2. quarter of 2020 went into the area of negative values (see chart below). The market expects the company's earnings to recover to last year's levels no earlier than 2021.
With all this, the issuer's credit profile remains fairly stable. Thus, with an annual interest payment of $ 80 million, the adjusted operating cash flow for the last 12 months amounted to $ 1,175 million as of June 30, 2020.
The first large payments of the debt are expected in 2025 (see chart below). the weighted average maturity of SWN's debt portfolio is 5 years. The issuer declares that it has open credit lines in the amount of $ 1.3 billion. Interestingly, despite all the perturbations with natural gas prices (which did not come to light yesterday), credit agencies are in no hurry to downgrade their ratings on Southwestern Energy. As a result, the issuer retains double B ratings from all the Big Three agencies.
Note that the probability of default of the company's Eurobonds maturing in 2026 during the remaining term to maturity, according to the Bloomberg default risk model, is only 4.9%. At the same time, the issue's credit spread (z-spread) reaches almost 800 bp. P.
The senior unsecured issue with maturity April 1, 2026 in the amount of $ 650 million was placed in September 2017 on the global market. The largest holder of the Eurobond, according to Bloomberg, is Blackrock (6.8%).
There are four call options on the security, the yield to the closest of them (04/01/2021 at a price of 105.625%) is 20%. There are no options for revising the coupon level (7.5% per annum). The coupon is paid twice a year: April 1 and October 1.
The face value and the minimum lot for the paper are respectively $ 1,000 and $ 2,000. The paper is serviced by NSD and is available only to qualified investors.
Alexey Shternshis
Joint Managing Director
Capital Pi
Among the international issues that have lagged behind the market in their dynamics, we would like to highlight the Eurobond of the American corporation L Brands, which is part of our portfolio Rentier-Global, with maturity in 2035. I must say that both L Brands shares and the LF98TRUU index (tracking American corporate high-yield Eurobonds) fully won back all the losses of the current crisis, while the price of the issue with maturity in 2035 is still about 10 figures lower than its dock-like February values. In our opinion, this discount has every chance of narrowing.
Like most retailers, L Brands is in the forefront of the hit in the current crisis. For the first time in a long time, quarterly operating profit (from February to April) went into negative territory, analysts worsened their forecasts for the company (see table below). Worse, because of the crisis, the deal to separate the unprofitable Victoria's Secret segment from the company fell through: the deal announced at the end of February 2020 to sell 55% in Victoria's Secret to the investment fund Sycamore Partners for $ 525 million was canceled on May 4. However, L Brands management confirms plans to spin Victoria's Secret into a separate company. The spin-off of the unprofitable Victoria's Secret will allow L Brands to focus on developing its other brands, notably Bath & Body Works and PINK.
However, the current crisis has stimulated the company to engage in a long-overdue restructuring. Last week, L Brands announced a cost-cutting plan to lay off 850 people, which should result in $ 400 million in savings (including $ 175 million this year). In addition, L Brands is set to close 250 Victoria's Secret stores, which is about a quarter of its US volume. The announced plan was greeted with enthusiasm by the market - quotations of both L Brands shares and bonds rose to their local highs.
The market now expects the company to be able to generate $ 570 million of EBIT this year, while L Brands' annual interest payments are just under $ 400 million. Note that according to the company, the amount of cash on its balance sheet as of 24.07 .2020 amounted to $ 2.5 billion. As for the principal amount, in general, the debt repayment schedule of L Brands looks balanced, the weighted average maturity is about 8 years. Note that this year the company has no repayments, while in 2021 it has to repay a Eurobond in the amount of $ 450 million.This task looks feasible, given, for example, that the volume of undrawn credit lines opened by L Brands is about $ 1 billion.
The cost of insurance against default (5-year CDS) is gradually normalizing to its ancestral values (see graph above). The probability of the company's default over the next 5 years, according to the Bloomberg risk model, is about 6%.
The senior guaranteed unsecured issue with maturity in 2035 was placed on the global market in February 2016. The largest holders of the Eurobond, according to Bloomberg, are Alliance Bernstein (5.0%) and Blackrock (3.5%).
There are no options for revising the coupon level (6.875% per annum). The coupon is paid twice a year: May 1 and November 1. The issue is rated by the agencies Moody's and S&P at B2 and B +, respectively.
The par value and the minimum lot for the issue are $ 1,000 and $ 2,000, respectively. The paper is serviced by NSD and is available only to qualified investors.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Perpetual Eurobonds
Against the backdrop of tending to zero interest rates, we decided to pay attention to the most highly profitable segment of the market - the so-called "perpetual" Eurobonds. It is clear that these securities, due to the risks associated with them (non-payment of the coupon at the discretion of the issuer, the likelihood of write-off), offer the highest levels of yield on the debt market. However, now that the markets are not expecting an increase in the base dollar rate over the next 2 years (see chart below), issuers have ample opportunity to refinance their obligations at reduced rates. This is especially interesting for securities placed several years ago - when rates on the markets were at local maximums.
In our field of vision were "perpetual" securities of Russian issuers, calls on which are planned in the future until the end of 2022. The peculiarity of the first call option is that in case of non-call option, the coupon level is recalculated using a formula that takes into account some basic parameter (US Treasures or interest rate swap) and a certain premium to it. The table below shows the coupon levels for 4 issues, if the recalculation took place right now.
As you can see, if issuers had chosen not to withdraw their Eurobonds on calls, they would hardly have received significant savings compared to current payments. In general, even the coupons recalculated in the current reality of near-zero rates look, in our opinion, overestimated, and we believe that some of the issuers will prefer to replace the existing securities with cheaper issues for servicing.
Note that these issues look interesting both in terms of the yield to the next call and the current yield (the ratio of coupon payments over the next 12 months to the current market price).
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Freeport-McMoRan Inc
Against the backdrop of storming 18-month highs in copper prices, we decided to pay attention to one of its largest producers - Freeport-McMoRan Inc. The company's capitalization has fully recovered from the consequences of the current crisis. A role in this was played by the fact that the company is a gold producer, which is also in great favor with investors lately.
The issue of the company with maturity in 2034 feels great too. It not only recovered to the levels preceding the March collapse, but also outperforms the LF98TRUU index, which tracks international high-yielding dollar corporate Eurobonds. However, there is still a certain potential for price growth in output in terms of the size of its credit spread, which is now 90 bp. n. exceeds its levels at the end of February
Last week, the issuer placed two issues - with maturities in 2028 and 2030. To reduce the duration, we recommend shifting from FCX 2034 (duration 10 years, z-spread 413 bp) to an issue maturing in 2028 (duration 5.4 years, z-spread 375 bp).
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Moscow Domodedovo Airport
The information that the Russian Federation plans to partially resume international flights from July 15, prompted us to pay attention to the issues of Moscow Domodedovo Airport. On July 3, Moody's confirmed the issuer rating at Ba1 with a “negative” outlook. The agency, therefore, completed a review of the ratings of the company, which it initiated on April 3 this year in the midst of an epidemic. Moody's expects the company to continue implementing measures aimed at restoring its financial profile and maintaining good liquidity. According to Moody's current estimates, the company's credit indicators can recover to levels that correspond to the current rating level by 2022.
At the end of March, Fitch downgraded the issuer ratings from BB + to BB, noting that, despite the shock of 2020, the company Has sufficient liquidity to cover expenses in the next 12-18 months.
Given the industry, it is not surprising that the company's Eurobonds were under significant pressure during the current crisis. For example, the issue price maturing in 2023 collapsed in March by more than 10 figures. Moreover, as can be seen in the chart below, in contrast to the EMUSTRUU index, which has already almost compensated for “conceivable” losses, the price recovery of the Eurobonds at Moscow Domodedovo Airport is far from being so active. The credit spread of the issue has expanded 2.5 times since February 25, 2020, which may be excessive.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Kinross Gold Corporation
The price of gold breaks historical records, which is not surprising, given that gold not only provides protection during crises, but is also an asset that benefits directly from rising dollar money supply - which is still observed now, during the period of intensive pumping of liquidity by markets. In this regard, it is logical to pay attention to the debts of gold mining companies, which, apparently, should continue to rise in price. For example, the Eurobond of Kinross Gold Corporation, one of the ten largest gold mining companies in the world, maturing in 2041. Note that the issuer has two active assets in Russia: Kupol and Dvoynoe (both in the Chukotka Autonomous Region).
It is not surprising that the market is very positive regarding the financial results of the company in 2020-2021. (see table below). We note the stable positive dynamics at the level of operating cash flow (FCF). It is expected that fuel prices and exchange rates favorable for gold miners will fully compensate for the additional costs of emergency measures taken during the crisis.
The debt repayment schedule is not worrying: the weighted average maturity is about 6 years, until 2024 the company has to make only one major payment - to pay off the Eurobonds in the amount of $ 500 million.
Net Debt / EBITDA metric is 1.0, as of March 31 .2020, the volume of cache on Kinross Gold's balance sheet amounted to $ 1.1 billion, in addition, the company opened credit lines worth $ 0.7 billion. High credit quality is primarily based on growing revenue indicators.
All Big Three agencies hold an investment rating for the issuer. Note that Moody’s upgraded its Kinross Gold Corporation Eurobonds rating with maturity in 2041 to “investment” (Baa3) in the midst of March sales in the markets.
The probability of default for the company over the next 5 years, according to the Bloomberg model, is about 2.5%, which corresponds to the performance of the most highly reliable issuers. Due to the high duration (12 years), the probability of a company’s Eurobonds defaulting with maturity in 2041 over the remaining maturity period is, according to the Bloomberg default risk model, 14%.
It should be noted that in contrast to the LBUSTRUU index (which tracks the price dynamics of dollar-denominated Eurobonds of the "investment" category), which has already reached its "dock" levels (see the chart below), the price of KCN 2041 is still 8 lower than its highs in early March 2020
Alexey Shternshis
Joint Managing Director
Capital Pi
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