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 two corporate debt securities as investment ideas for this week: Southwestern Energy Company and Eurasian Development Bank.
In the segment of Eurobonds with a higher yield, let us highlight the issue of the American Southwestern Energy Company with maturity in 2026. The issuer is engaged in the exploration and production of natural gas and oil in several US states (mainly in Texas) and Canada. In 2018, revenue and EBITDA amounted to $ 3.8 and $ 1.3 billion, respectively, and net profit was fixed at $ 0.5 billion. All three agencies of the Big Three hold a “stable” outlook on the company's rating change. The issuer's shares are traded on the NYSE with a current market capitalization of $ 2.3 billion.
Eurobond in the amount of 650 million dollars was placed in September 2017. On paper, there are four call options, the yield to the nearest of them (04/01/2021 at a price of 105.625%) is 8.7%. Pay attention to an interesting level of coupon (7.5% per annum) on paper. SWN 7 ½ 04/01/26 is under maintenance at NSD.
Note that SWN 7 1/2 04/01/26 looks interesting against the background of Eurobonds from issuers from developed markets with a BB- rating.
At the end of last month, S & P raised the rating of the Eurasian Development Bank (EDB) from BBB- to BBB. The forecast is “stable”, which reflects the expectations of S & P that the EDB will be able to effectively manage business growth in the next 24 months, preventing the risk position from deteriorating. The agency admits raising issuer ratings, “if the bank maintains extremely high capitalization rates against the background of higher business growth rates, which will strengthen its role and importance as a development institution for the member countries”.
The EDB was established by Russia and Kazakhstan in 2006, and its participants are Armenia, Belarus, Kyrgyzstan and Tajikistan. The issuer is engaged in financing large investment projects in the Eurasian region. In 2018, the EDB investment portfolio increased by 47% to $ 3.4 billion.
In our opinion, the Eurobond of an issuer with redemption in 2022 looks interesting against the background of international securities with a rating of BBB.
Today we will look at two corporate debt securities as investment ideas for this week: Altice Europe and NLMK.
INVESTMENT IDEAS
Idea #1: Altice Europe N.V.
In the segment of foreign short-term bonds pay attention to an issue of a European telecommunications holding - Altice Europe N.V. This issuer is a cable telecommunications media company that offers television, broadband Internet access, broadcasting, digital advertising, telephone and entertainment services to customers around the world. The headquarters is in Amsterdam, the company employs 47 thousand people. Shares Altice Europe N.V. traded on the Amsterdam Stock Exchange; the company's capitalization is 4.5 billion euros.
The dollar issue maturing in February 2023 was placed in January 2015 at 6.625% per annum. The output amounted to 2.1 billion dollars. Prior to the redemption on paper, three calls are envisaged, the closest of them is scheduled for May 13, 2019 at a price of 103.313%. Please note that the minimum lot of paper is 200 thousand dollars.
ALTICE 6 ⅝ 02/15/23 looks quite interesting against the background of Eurobonds from issuers from developed markets with a rating of B.
Idea #2: Novolipetsk Steel (NLMK)
Last week, Fitch upgraded NLMK's long-term credit rating from BBB- to BBB with a stable outlook. Fitch positively assesses the company's financial stability, ensured by a high level of operating efficiency and a low debt burden. Thus, NLMK joined a narrow group of Russian issuers (which also includes Lukoil, Novatek and Severstal), which have a rating higher than the Russian sovereign from the two Big Three agencies. It should be noted that the issue of NLMK with maturity in 2023 is traded with the maximum yield premium to the sovereign curve among the issues of such issuers.
In the segment of securities with high yield and moderate duration, we will pay attention to the "eternal" dollar Eurobond of the company of the real sector of the economy - the American DCP Midstream Partners, LP. The Issuer provides processing, transportation, fractionation and storage services to producers and consumers of natural gas. It carries out its activities in three areas: services, logistics of liquefied natural gas and wholesale trade in propane. Included in the Fortune 500. Headquartered in Denver (Colorado). Market capitalization on the stock exchange - 4.8 billion dollars.
"Eternal" issue with a call option on 12/15/2022 at par is placed in November 2017. Its volume is 500 million dollars. In the case of non-calling, the coupon rate will be recalculated using the formula = 3-month interbank rate LIBOR + 5.148%. The minimum lot for the release corresponds to par and amounts to 1 thousand dollars.
We note that DCP 7 PERP looks interesting against the background of Eurobonds from issuers from developed markets with a composite rating of B+/B.
Gazprom in 2018 received a record 0.93 trillion rubles in net profit under RAS. This figure is an absolute record for the parent company, the previous record was in 2011 (882 billion rubles). A more objective picture will be able to provide consolidated reporting on the group (IFRS data), which will be disclosed by the issuer in late April.
On April 23, the issuer must repay the issue by $ 2.25 billion, after which its line of dollar issues will be reduced to 9 items. The most interesting investment in it at the moment is the issue with maturity in 2034, which continues to be traded with an expanded yield premium relative to the Russian sovereign curve.
The policy of easing monetary policy, confirmed recently by the European Central Bank, made us pay attention to the securities denominated in euros. In particular, the segment of "eternal" Eurobonds, offering the highest levels of profitability. Note that the "eternal" paper in the euro emit not only banks, but also companies in the real sector of the economy.
For example, the Volkswagen AG concern has a whole line of "eternal" issues, among which we highlight the Eurobond, placed in June last year with a coupon of 4.625% (the issuer has another "eternal" issue with the same coupon, placed in 2014). Issue in the amount of 1.5 billion euros was placed on 20.06.2018. The nearest call option on paper is provided for 06/27/2028 at face value (further calls will follow each year). Please note that the minimum lot for production is 100 thousand euros.
In our opinion, VW 4 ⅝ PERP (new) looks interesting against the background of "eternal" Eurobonds with an "investment" rating.
The “window” of primary offerings that has opened since the beginning of 2019 has recently been taken advantage of by the domestic Ministry of Finance, which placed the dollar issue with maturity in 2035 with a coupon of 5.1% per annum. Although it is traded with a small premium in yield to the sovereign curve, we consider the most “old” issue (placed back in 1998) to be redeemed in June 2028 as a more interesting investment in the line of Russian government loans. For this much shorter issue (with a duration of just over 6 years), we can now fix the dollar yield at 4.6%. A distinctive feature of the RUS-28 issue is the minimum lot of $ 10 thousand (versus the usual volume for Russian Eurobonds at $ 200 thousand). Note also the very high coupon rate - 12.75% per annum.
The reduction in market expectations for growth rates causes a situation where in the sector of highly reliable Eurobonds yield of about 6% can provide paper only with a relatively long maturity. For example, the release of the largest US retailer clothing Macy’s, Inc. maturing in 2034. Eurobond in the amount of 550 million dollars (in circulation there are securities for 367 million dollars) was placed in November 2014. The issue provides one call option at par for six months before maturity. The minimum lot for M 4 ½ 12/15/34 is 2 thousand dollars. Note that the paper is serviced by NSD.
Founded in the mid-19th century by Macy’s, Inc. owns universal stores that sell clothing and accessories in the United States. The corporation also manages subsidiary companies engaged in address distribution of catalogs and electronic commerce. Macy’s Network, Inc. includes 840 department stores located in 45 states. As of February 2019, the company employed 130 thousand people.
In 2018, the issuer's revenue and EBITDA amounted to $ 24.8 and $ 2.8 billion, respectively, net profit was fixed at $ 1.5 billion. Moody’s keeps a “stable” outlook on the rating change (Baa3) of the company, S & P and Fitch agencies - “negative” (BBB- and BBB, respectively). Shares of Macy’s, Inc. traded on the NYSE, the company's current market capitalization is 7.2 billion dollars.
One of the events of the beginning of the year for the Eurobond sector was the return to trading mode of three issues of RUSAL after the removal of sanctions from the issuer by the U.S. Department of the Treasury. Since the beginning of February, papers have been actively reducing their premiums in terms of yield to the sovereign curve, including against the backdrop of reporting for 2018, which showed weak damage from the sanctions imposed.
However, due to the fact that the issuer is still without ratings, the premiums are still extended relative to their "pre-sanction" levels. So, for the issue with redemption on February 2, 2022, the current spread in yield to the issue of "Russia" with redemption on April 4, 2022 reaches 220 bp, whereas at the beginning of April last year - on the very eve of the appearance of sanctions news regarding the company - it was about 190 bp. March 10, the company said it expects the renewal of credit ratings within three to four weeks.
The policy of easing monetary policy, confirmed recently by the European Central Bank, made us pay attention to the securities denominated in euros. One of the highest returns in the segment of relatively high-rating securities is offered by the release of Vodafone Group PLC with maturity in 2078. The nearest call for paper (at par) is provided for in October 2028, then calls will follow each year. If the call option won't revoke in October 2028, the coupon rate will be recalculated.
An issue of 0.5 billion euros was placed in September 2018. Note that the minimum lot for paper is 100 thousand euros. The payout rank is junior subordinated, the release has a BB + composite rating from the Big Three agencies. The yield to the nearest call is 4.8% per annum.
On March 14, 2019, Moody’s upgraded the Metalloinvest rating from Ba2 to Ba1. The rating outlook has been changed from "positive" to "stable". The rating improvement reflects Moody's expectations that the issuer's “adjusted debt / EBITDA” metric will remain below 2.0, and the company will generate a steady positive free cash flow, as well as maintain strong liquidity indicators. Note that the S & P agency holds the BB + rating for the issuer, while the Fitch agency keeps one step lower (BB).
We note that the Eurobond Metalloinvest with redemption in February 2024 looks quite competitive against the background of securities from international issuers of similar credit quality.
Among American securities with "investment" ratings and increased profitability we will pay attention to the junior subordinated issue of the American giant Enterprise Products Partners L.P. With maturity in 2078, the Eurobond in the amount of $ 700 million was placed in February last year. On paper there is a call option in February 2028 face value. The minimum lot for EPD 5 ⅜ 02/15/78 is 2 thousand dollars.
Founded in 1968, Enterprise Products Partners L.P. took 105th place in 2018 in the list of the largest American companies in terms of revenue. The issuer provides services for the processing and transportation of gas condensate liquids and crude oil, owning more than 80 thousand km of pipelines. Headquarters is located in Houston (Texas). The company employs 7 thousand people.
In 2018, the issuer's revenue and EBITDA amounted to $ 36.5 and $ 7.1 billion, respectively; net profit was fixed at $ 4.2 billion. All three agencies hold a "stable" outlook on the issuer rating change (Baa1 / BBB+). Shares Enterprise Products Partners L.P. traded on the NYSE, the company's current market capitalization is $ 61 billion.
Among Russian papers with a duration of about a year, interestingly, in our opinion, looks at the issue of “TMK” with maturity on April 3, 2020. According to the company's presentation, in 2019, TMK needs to repay $ 901 million, in 2020 - $ 702 million. It cannot be excluded that the Eurobond with maturity in 2020 will be refinanced by placing a new issue. At least, the possibility of entering the Eurobond market with new borrowing as early as 2019 was recently mentioned by the deputy general director for strategy and development of the company, Vladimir Shmatovich.
Let us pay attention to the release of one of the world's leading pharmaceutical companies TEVA PHARMACEUTICALS with a redemption in 2028 the Eurobond in the amount of 1.25 billion dollars was placed in April 2018. On paper there is one call option for three months before maturity. Please note that the minimum lot for TEVA 6 ¾ 03/01/28 is 200 thousand dollars. The release is under maintenance at NSD.
TEVA PHARMACEUTICALS is the largest generic producer in the world. The company produces hundreds of generic versions of branded antibiotics, heart medications, heartburn medications, and more. About half of sales are in the USA, one third in the EU, and the company's products are also available in Russia. The headquarters is located in Israel. TEVA PHARMACEUTICALS employs 43 thousand people.
In 2018, the issuer's revenue and EBITDA amounted to $ 18.9 and $ 0.2 billion, respectively, and the net loss was fixed at $ 2.2 billion. Moody's keeps a “stable” outlook on the issuer rating change (Ba2), S & P and Fitch agencies have a “negative” rating (both are BB). TEVA PHARMACEUTICALS shares are traded on the NYSE, with a current market capitalization of $ 19.6 billion.
February 12, 2019 ICD placed 5-year eurobonds for 500 million euros at a rate of 5.15% per annum. The issue in euro has become a debut for the issuer and is a senior without options for early redemption and / or a change in coupon level. According to the organizers, the demand for paper amounted to 875 million euros. The issue has been assigned BB- ratings by the S & P and Fitch agencies.
Eurobond has risen in price by more than a “figure” since its placement and is now trading above par. Nevertheless, it still looks interesting not only in the segment of Russian euro papers (see the market map on page 19 of the review), but also against the background of international Eurobonds from members of similar credit quality.
Among the papers with high yield and relatively high ratings, let us turn our attention to one of the issues of Seagate Technology with redemption in 2027. Eurobond in the amount of $ 0.7 billion placed in May 2015. On paper there is one call option for three months before maturity. The minimum lot is $ 2,000. The output is under maintenance at NSD.
Seagate Technology PLC designs and manufactures hard drives for enterprise applications, personal data backup systems, portable external storage systems, and digital media systems. About half of sales come from Singapore, about 30% to the United States, and the company's products are also available in Russia. Number of employees - 43 thousand. Seagate Technology PLC is headquartered in California (USA).
In 2018, the issuer's revenue and EBITDA amounted to $ 11.3 and $ 2.4 billion, respectively, net profit was fixed at $ 1.7 billion. Moody's keeps a stable outlook on the issuer rating change (Baa3), Fitch agency has a negative outlook (BBB-). Seagate Technology shares are traded on the NASDAQ GS, the company's current market capitalization is $ 13.2 billion.
Against the background of steady growth in prices for non-ferrous metals, in particular, for palladium, let us pay attention to the issues of Nornickel. Recall that Moody’s recently, following the sovereign, raised the company's foreign currency rating from Baa3 to Baa2. Nornickel Eurobonds are traded fairly smoothly relative to the Russian sovereign curve, so we single out the shortest issuer issue maturing in October 2020.
One of the highest dollars yields in the segment of Eurobonds with "investment" ratings is offered by the line of loans of the Mexican state company Petroleos Mexicanos. Thus, the issue placed a year ago with maturity in March 2027 now offers a yield of 6.8%, which seems to be a very competitive level on an international scale. There is no option for revising the coupon level for the issue of $ 5.4 billion. The minimum lot is 10 thousand dollars, the paper is serviced by NSD.
Founded in 1938, Petroleos Mexicanos is a state-owned non-public company engaged in the exploration and production of oil and gas in Mexico. Petroleos Mexicanos exports both petroleum and the main petrochemical products. Pay one third of all taxes collected by the Mexican government. The company employs 129 thousand people.
As of September 30, 188, Petroleos Mexicanos's revenue and EBITDA for the last 12 months amounted to $ 87.7 and $ 19.4 billion, respectively, and the net loss reached $ 17 billion. Agencies Moody's and S & P hold a "stable" outlook on changing issuer ratings, Fitch agency - "negative."
Following the upgrade to the “investment” stage of the Russian sovereign rating, Moody’s improved the ratings of a number of Russian companies. In particular, the ratings of NOVATEK and LUKOIL were upgraded to Baa2, as a result of which these two issuers became the only ones in the Russian Federation who now have a rating not lower than BBB from Moody’s, S & P and Fitch agencies. We note that the issues of these two companies are redeemed in 2022-2023. They look interesting in terms of profitability against the background of Eurobonds of international companies.
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