Moscow Exchange planning to launch index for "substitute" bonds

ST. PETERSBURG. June 20 (Interfax) - In the near future, the Moscow Exchange is planning to launch a substitute bond index, the Managing Director of the MOEX business development department, Kirill Pestov said.

"These are our immediate plans. We are going to launch an index of substitute bonds, which also happens to be a very large class of instruments that is developing quite dynamically, and most importantly, it implies a very interesting yield in dollars. Therefore, we think it may be a popular product for private investors, and the management company will be able to issue appropriate funds," Pestov said at the NAUFOR Collective Investment Market 2023 conference.

It is planned to include issues of corporate bonds denominated in dollars in the calculation base for the new index, the MOEX presentation said.

Substitute bonds began appearing on the market last year when Russian borrowers were legally given the opportunity to place domestic bonds into circulation in exchange for Eurobonds. Bonds of this type are denominated in foreign currency, but all payments on them are made in rubles, and the main parameters of these bonds must match the parameters of the Eurobond issues they replace.

Until recently, the placement of substitute bonds was simply an option for borrowers, but a presidential decree published at the end of May made the issue of these debt securities mandatory.

Now the lion's share of the substitute bond market is occupied by securities from Gazprom , which has already partially replaced all its Eurobond issues and started the second round of exchange for a number of issues. Also, another representative of the oil and gas sector, Lukoil has also replaced all its Eurobond issues. In addition, Sovcomflot , Magnitogorsk Iron and Steel Works , Metalloinvest, developer PIK, SUEK, and Borets all now have substitute bond issues. PhosAgro also recently announced plans to replace its Eurobond issues with domestic ones.