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 security as investment ideas for this week: VTB
Against the backdrop of Russian Eurobonds yields returning to the range of 3-4%, the segment of securities with high yields from highly reliable issuers is of particular interest. If we take into account the liquidity of the instrument (minimum lot size, availability for an unqualified investor), then the choice essentially becomes no alternative - we are talking about the so-called “eternal” dollar Eurobonds of VTB Group, issued by its subsidiary VTB Eurasia. Now on this paper you can fix the yield to call in December 2022 at the level of 5.8%.
VTB's junior subordinated "perpetual" Eurobonds worth 2.25 billion dollars were placed in July 2012 with a coupon of 9.5% per annum. The main risks associated with it are the issuer's right to not pay the coupon (which will not subsequently be compensated to the holder and which will not entail the issuer's technical default), as well as the possibility of writing off the issue to cover losses. Usually in the prospectus of “eternal” Eurobonds a trigger is prescribed that starts the process of writing off paper. As a rule, this trigger is the first level equity ratio (common equity Tier 1 ratio), the minimum value of which is set at 5.125%. There is no specific trigger level for VTB. Note that since the placement of the Eurobond in 2012, VTB Group's capital adequacy has not fallen below 9% (see chart below).
As for the likelihood that the next call option will be realized in December 2022, it is worth noting that the repurchase of the Eurobonds could put pressure on capital, while VTB still needs it. In addition, in October 2022, VTB Group will have to repay a subordinated issue in the amount of $ 1.4 billion. In this regard, the repayment of the “perpetual” issue in the amount of $ 2.25 billion is unlikely. Nevertheless, significantly increase the likelihood of a call-back withdrawal (if not in December 2022, then, for example, six months after that - call options will follow twice a year) could move on the "sanctioned" field. Recall that, since 2014, VTB has been deprived of the opportunity to attract financing in the Eurobond market. In the case of easing the sanctions, the group could try to replace the “eternal” Eurobonds with a 9.5% coupon with a cheaper issue for servicing, especially since the current market conditions allow this.
Note that in case of non-withdrawal of the paper according to collapse in December 2022, the coupon level will be recalculated according to the formula = ten-year UST + premium 806.7 bp. n. If the new coupon were recounted now, it would be 8.8% per annum, which, obviously, would not give any significant savings in comparison with current payments.
In the first two months of 2020, VTB's issue price approached its historic highs. Having suffered during the March collapse, the Eurobond, nevertheless, was able to recoup about 75% of losses by now, which looks better than the dynamics of the EMUSTRUU index, which tracks the dollar-denominated debt of developing countries (see chart above).
Meanwhile, significant potential for VTB price growth (perp) remains in terms of the z-spread. So, if in mid-January 2020, the premium in yield to US treasury bonds narrowed to 330 bp. p., now it is 570 bp. P.
Due to the issuer's higher credit quality, the VTB Eurobonds are traded with a minimum yield spread compared to their Russian counterparts. Note that although VTB (perp) does not have ratings from international agencies, it cannot be said that it looks cheap against the backdrop of global “eternal” papers (see chart below). The thing is, in general, this segment of high-risk instruments is still far from its "dock" levels. However, the situation is changing right before our eyes - for example, the “eternal” Eurobonds of West European banks have been hastily catching up recently.
Due to the high coupon (9.5%), the level of the current yield of the paper (the ratio of coupon payments over the next 12 months to the current price) of 8.7% looks interesting. As follows from the table below, in terms of this indicator, VTB issue is one of the three in the segment of Russian Eurobonds.
Note that the junior subordinated “eternal” issue of VTB is traded on Mosbirzhe with a minimum lot of $ 1,000. A paper coupon is paid on June 6 and December 6.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Freeport-McMoRan Inc.
Freeport-McMoRan Inc., mid-March 2020, lost more than half of its stock capitalization at the beginning of the year. The epidemic has led to a decrease in demand for copper, to a generation of hopes for the restoration of prices for this metal this year. Growth in emerging economies and weakening trade is expected to support prices. However, copper prices began to gradually increase in price, which could lead to a shortage of this metal, Freeport-McMoRan.
Nevertheless, the market expects a decrease in revenue indicators this year with a rather active recovery in 2021. (see table below). Meanwhile, I quarter of 2020 EBITDA and operating income.
Debt repayment schedule Freeport-McMoRan Inc. quite balanced (so, the average maturity is about 9 years). However, negative dynamics leads to a deterioration in credit metrics.
For example, the Net Debt / EBITDA ratio exceeds 4. However, the company's liquidity position looks solid: for example, as of March 31, 2020, it includes $ 1.6 billion. In addition, she had access to credit lines in the amount of $ 3.5 billion.
The Big Three agencies have not been reviewing their issuer ratings for quite some time (see table below). Now a composite ranking of Freeport-McMoRan Inc. two steps below the “investment” (BB), which does not have the most brilliant credit metrics of the issuer. Given the significant “pillow” of liquidity, the probability of a company defaulting over the next 12 months, according to Bloomberg, is only 1%. Note that the default probability of the FreeportMcMoRan Eurobond maturing in 2034. According to the default risk model, Bloomberg, 14%.
With a maximum level of the end of February, the 2034 Eurobond FCX lost about the current percentage, and the American High Yield Bonds Index (LF98TRUU) - about 10%. Interestingly, a year ago, taking into account the fact that it was accepted in the same volume as its obligations under US treasury obligations, it expanded by almost 200 bp during this time. P.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: GTLK
The issues that have undergone the strongest downward revaluation during the current crisis include Eurobonds of the State Transport Leasing Company (GTLK). On average, 5 issues of the issuer have increased in profitability since March 5 (the eve of massive sales in the markets) 180 b. n., while the average growth in yield in the sector of Russian securities of the 2nd echelon was twice lower. Such dynamics is not surprising, given the high dependence of GTLK financial performance on the airline industry, where some companies may encounter problems when making payments under leasing contracts. Note that in 2019, the air transport sector accounted for 37% of the GTLK leasing portfolio.
Meanwhile, whether the company's bonds will become full-fledged “fallen angels” —that is, whether one can expect a significant deterioration in GTLK's credit ratings amid the current crisis — is an open question. In particular, on April 20, 2020, Fitch Ratings changed its forecast for the long-term foreign currency default rating of GTLK from “positive” to “stable”, however, it confirmed it at BB +. The change in the rating outlook reflects "the significant impact of the global COVID-19 pandemic on the Russian economy, which will exert increasing pressure on the state budget as spending priorities in a number of areas increase." At the same time, leaving the rating level unchanged reflects, according to Fitch analysts, a high probability of government support for the company (in fact, GTLK is 100% owned by the state), while the agency does not see a tendency to weaken it.
Note that GTLK Eurobonds have currently won back about half of the March losses. For example, the price of the shortest issue in the issuer's line - maturing in 2021 - reached face value. However, now the spread in profitability to the underlying asset (480 bp) on this security coincides with its level when placed in July 2016, while then the GTLK rating, for example, from Fitch was two steps lower than the current.
At present, with the GTLK dollar Eurobonds maturing in July 2021, a yield of 4.9% can be fixed, which looks interesting for paper whose default probability over the remaining maturity period is 1.83% (according to the issuer default risk model Bloomberg).
The senior unsecured issue of GTLK maturing on July 19, 2021 has a coupon of 5.95% per annum. The Eurobond volume is $ 0.5 billion. Options for early recall and / or revision of the coupon level are not provided. Note that the issue is available to unqualified investors.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at two debt securities as investment ideas for this week: British American Tobacco and Nornikel
Against the backdrop of the flood of markets with liquidity from the Fed, the renaissance in the Eurobond market from the world's largest manufacturers continues. However, price levels at the end of February have not yet been reached, for example, for relatively distant securities, the “shortage” is 10 or more figures. Thus, the markdown for the Reynolds American corporation maturing in 2035 relative to its level of March 5 currently reaches 15 figures.
The issuer of the bond is Reynolds American Corporation, the second largest cigarette producer in the USA (owning, in particular, brands such as Camel, Pall Mall and Winston), which in 2017 was acquired by British American Tobacco, the second largest producer of cigarettes and tobacco in the market. products in the world second only to Philip Morris International. BAT produces 700 billion cigarettes a year, which it sells in more than 60 countries. He owns 9 global brands, including Dunhill, Kent, Rothmans, Lucky Strike and others. In addition, BAT relies on products with reduced tobacco / nicotine content (vapes, snus, electronic cigarettes), which account for a third of sales. British American Tobacco has a current market capitalization of $ 86 billion.
Now, on the issue of BATS 2035, it is possible to fix a yield of about 5%, which seems to be a very interesting level for paper with a composite rating of BBB.
Although the Eurobond market is quite actively recovering losses after the March sell-off (and Russia is one of the leaders in this regard among large developing economies), the very nature of such a recovery seems somewhat unstable. First of all, the speed of both the collapse of the markets and their subsequent reversal to growth is striking. It is clear that the Fed reacted quite quickly, and expectations of an influx of new, cheap liquidity are pushing the global dollar debt market to new price heights. At the same time, it is still very doubtful that someone will be able to give an accurate forecast regarding the losses that the world economy will ultimately suffer as a result of the coronavirus pandemic still gaining momentum.
In this regard, we draw attention to the relatively short issues of Russian companies in the non-financial sector with a good credit profile. In particular, for those of them that are traded on Mosbirzha and are available to unskilled investors. For example, on the Norilsk Nickel Eurobonds maturing in October 2022, the minimum lot of which is $ 1,000. Now you can fix a yield of 3.3% on this investment tool, which seems to be an interesting level compared to deposit rates in dollars. Note that the current price of paper is about 3 figures below the February highs of this year.
The issuer has already submitted financial results for 2019, which have confirmed its high credit quality. So, the Net Debt / EBITDA metric is 0.9. Cash 2.5 times the short-term debt.
The senior unsecured issue of Norilsk Nickel was placed in October 2015 at 6.625% per annum. Eurobonds amount to $ 1 billion. Options for early recall and / or revision of the coupon level are not provided.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at two debt securities as investment ideas for this week: Hewlett Packard Enterprise Co and VEB.RF
The global Eurobond market is beginning to gradually move away from the March shock. It should be noted that the liquidity crisis and the flight to quality did not spare even the highly rated securities, many of which fell in value below par. This also affected the issue of Hewlett Packard Enterprise Co with maturity in 2025, which has credit ratings at the BBB level. At the moment, the issue was losing in price 20 pieces, however, now it has won back about half of the losses.
Currently, the z-spread of the issue is 395 bp. n. In the coming months, markets do not forecast an increase in the dollar base rate. Assuming that after 6 months the spread normalizes to its average value for the last year (150 bp), this promises an increase in the price of the Eurobonds from the current 103% to 113% of the nominal.
Note that the HPE Eurobond looks very competitive against the backdrop of the most liquid US issues of a comparable rating. It was placed in November 2016 in the amount of $ 2.5 billion. Note that the paper is serviced by NSD.
Turbulence was not spared and debt denominated in euros. For example, a sovereign Russian Eurobond with maturity in 2025 depreciated by 10 figures by mid-March, and corporate papers with "investment" ratings did not lag behind in this regard. However, judging by the quotes, the acute phase of entering the liquidity is apparently already behind us, and even a timid, but still rebound, has been outlined. In this regard, it is important not to lose time and open positions in papers on interesting returns.
Our attention was drawn to the euro-nominated senior issue of the state-owned development corporation VEB.RF maturing in February 2023. Like the entire sector, the paper underwent a downward revaluation last month, although it was able to stay at a price higher than the face value. Now, with a Eurobond, you can fix a yield of about 3%, which seems to be an attractive level against zero deposit rates in euros. Please note that this tool is available for unskilled investors. In addition, the minimum lot for release on Mosbirzhe is only 1 thousand euros.
The Issuer (VEB.RF) is wholly owned and controlled by the state. Credit ratings correspond to Russian sovereign ones. Having lost the opportunity to refinance its external debt due to sectoral sanctions of the West, since 2015 the state corporation annually receives subsidies from the federal budget to compensate for the costs of fulfilling obligations on external borrowing.
VEB.RF Senior Unsecured Issue was placed in February 2013. The Eurobond volume is EUR 0.5 billion. Please note that, as with most securities denominated in euros, the issue coupon is paid once a year (February 21). Options for early recall and / or revision of the coupon level (4.032% per annum) are not provided.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Gazprom
Current turbulence in the markets can be seen as an interesting time to open positions. The fact is that a feature of the current stage in the market for fixed-income instruments is a significant expansion of the spreads in profitability to the underlying asset that occurred as a result of investors fleeing to quality. For example, the average z-spread of Russian corporate Eurobonds from first-tier borrowers (with credit ratings no lower than the Russian sovereign) compared to the end of 2019 expanded from 100 basis points (bp) to almost 400 bp. n. This happened both as a result of lower yields on US Treasury bonds (UST) and a frontal sale of debts of issuers from developing countries - even those that are denominated in dollars.
Based on the assumption that the normalization (narrowing) of spreads is only a matter of time, it is quite obvious that this process from the point of view of price growth is most favorable for the most distant securities. For example, as a result of narrowing the spread and falling UST profitability in 2019, Gazprom's issue maturing in 2034 went up by 25 figures. Thus, the investor who bought this bond at the beginning of 2019 and closed its position after 12 months had the opportunity to earn 2.5 times more on price increases than, actually, on a coupon, which is 8.625% per annum on this security.
At the moment, the z-spread of Gazprom’s issue reaches 420 bp. n. Note that at the beginning of 2020 it narrowed to 200 bp. n. If we assume that, for example, in the next 6 months the issue spread recovers to its average value in 2019 (300 bp), then the Eurobond yield should fall from the current 4.9% to 3.7%. This promises a price increase from the current 138% to 152% of the nominal.
Note that this Eurobond is one of the most liquid dollar instruments in the Russian debt market. It was placed in April 2004 in the amount of $ 1.2 billion. There are no options for early recall and / or revision of the coupon level. The coupon is paid twice a year: April 28 and October 28. Please note that the issue is also available for unqualified investors.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look debt security as investment idea for this week: Polyus company
Under the current conditions of uncertainty caused by the coronavirus, let us turn our attention to the issues of the largest Russian gold miner - the Polyus company. It should be noted that in spite of the “protective” nature of gold, the company's Eurobonds were also swept by a wave of sales, although to a slightly lesser extent. So, since the beginning of March, Polyus issues lost about two figures in value, while the price drop of senior Russian securities from companies in the real sector of comparable duration reached 3 pp.
Due to the virtually no premium for duration, we single out the shortest issue in the issuer's line - maturing in 2022. We are waiting for the z-spread to normalize as the market stabilizes.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment idea for this week: AngloGold Ashanti
Against the backdrop of the departure of global investors in protective assets, we turn our attention to Eurobonds of gold mining companies, in particular, to the issue of the multinational AngloGold Ashanti corporation with maturity in 2040. Along with Newmont and Barrick, the issuer is among the three largest gold producers in the world - in 2019 mined 3.3 million ounces. Founded in 2004, AngloGold Ashanti operates in 10 countries, including South Africa, Australia, Argentina, Brazil, the USA, Namibia and Tanzania. The company's branches employ 44 thousand people, its exchange capitalization reaches $ 8 billion.
On February 21, the company presented consolidated data for 2019, showing an increase in profitability. Debt load AngloGold Ashanti is at a comfortable level.
Moody’s and Fitch have an investment rating of AngloGold Ashanti, S&P - BB +. All three Big Three agencies hold a stable outlook on the issuer.
$ 300 million senior unsecured AngloGold Ashanti issue was placed in April 2010. The global market for emissions. The nominal value and minimum lot on paper are $ 1,000. Note that the Eurobond is serviced by NSD.
Note that the paper looks very interesting against the background of papers from world gold mining companies.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: Sprint Corporation and Development Bank of the Republic of Belarus
Among foreign securities of small lottery with a yield of about 6%, let us pay attention to one of the Eurobonds of the American telecommunications company Sprint Corporation. The issuer is the fourth company in the United States by the number of mobile phone subscribers, according to data as of June 30, 2019 serving 54.3 million subscribers. Headquartered in Overland Park (Kansas). The company employs about 30 thousand people. Sprint Corporation shares are traded on the NYSE with a current market capitalization of $ 20 billion. The issuer is 84% controlled by the Japanese conglomerate Softbank Group Corp., whose exchange capitalization reaches $ 92 billion.
Sprint Corporation's credit standing is in full compliance with its “B” ratings from Moody’s and S&P. The values of the issuer's credit metrics look somewhat elevated, financial indicators - volatile.
Sprint Corporation is a fairly active borrower in the bond market. At present, the company’s Eurobonds totaling $ 22.5 billion are in circulation. Note that the issue with maturity on November 15, 2028 is among the most liquid ones.
A senior unsecured issue of $ 2.5 billion was placed in November 1998. The global market for emissions. There are no options for revising the coupon level (6.875% per annum) before the end of the maturity. Please note that the face value and minimum lot on paper are $ 1,000. Paper is serviced by NSD.
The dynamics of the issue price S 6 7/8 11/15/28 (SPRINT 28) in the past 12 months has been quite volatile - and this is against the backdrop of a steady growth in the industry benchmark. However, since mid-May of last year, the issue has been stably trading above par.
One of the papers showing impressive growth rates since the beginning of 2020 is the dollar-denominated Eurobonds of the Development Bank of the Republic of Belarus (RBRB) with maturity in May 2024. Thus, from December 31, 2019, the price of this issue rose from 105.5% to 107.5%. The rise in price of paper occurs against the backdrop of a dynamic growth in the value of dollar debts of the Government of Belarus, which during this period dropped half a percent in profitability.
BRRB was established in 2011 and is fully controlled by the state (the government directly owns 96.2% of the bank and another 3.8% is controlled by the state-owned company Belaruskali). S&P and Fitch agencies hold the issuer rating B with a "stable" outlook. Note that the issuer's rating is sovereign, which reflects the role of the bank as a national development institution, the high probability of state support and the subsidiary liability of the Republic of Belarus for the issuer's debt obligations.
The senior issue of BRRB in the amount of $ 500 million was placed in April 2019 at 6.75% per annum. The issue market is Eurodollar. Options for early recall and / or change of coupon level are not provided. Please note that the minimum issue lot is $ 200 thousand. The Eurobond is serviced by NSD and is available only to qualified investors.
Since the placement, the issue has lost 180 bps. p., which was mainly due to a decrease in its credit spread (110 bp). In general, a combination of moderate duration and a 4.7% return is noteworthy.
Alexey Shternshis
Joint Managing Director
Capital Pi
Today we will look at one debt security as investment ideas for this week: GeoProMining
One of the leaders of price growth in the past year was the only issue of GeoProMining with maturity in 2024. This dynamics does not look surprising, given the characteristics of this paper: senior issue, real sector, moderate duration, relatively high coupon (7.75%) . Even now, after the growth in the price of paper since the beginning of 2020 by almost a figure, the yield on the Eurobonds (6.6%) looks interesting both against the background of Russian securities and in the international context.
GeoProMining is a mining company specializing in the extraction and processing of gold, silver, antimony and copper in Russia and Armenia. The company is controlled by Siman Povarenkin.
In the first half of 2019, the issuer showed good dynamics in financial indicators, in particular, an increase of 57% y / y at the level of consolidated EBITDA can be noted. The company will use the funds raised as a result of the Eurobonds placement to refinance bank loans and complete the construction of an enrichment plant with a capacity of 300 thousand tons of silver-polymetallic ore per year at the Verkhne-Menkeche deposit in Yakutia. It should be noted that despite the placement of this Eurobonder ($ 300 million), the issuer's credit metrics remain at quite comfortable levels: for example, the Net Debt / EBITDA metric is 1.7, the interest coverage ratio is 5.4. In addition, the placement of the Eurobonds made it possible to optimize the debt repayment schedule: now the main payments are expected in 2024.
The 300 million senior GeoProMining issue was placed in June 2019 at 7.75% per annum. The issue market is Eurodollar. S&P and Fitch agencies rate the issue at B +. Options for early withdrawal and / or change of coupon level are not provided. Please note that the minimum lot on paper is 200 thousand dollars. Eurobonds are serviced by NSD.
Alexey Shternshis
Joint Managing Director
Capital Pi
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