International funding. International long-term financing
International funding is economic relations arising on the basis of the provision and receipt of capital necessary to reproduce profits, and are implemented through a system of agreements with foreign assets and related settlements, in which residents of several countries take part.
The structure of international funding is considered in various aspects depending on the purpose of the study, in particular, taking into account the subjects (institutions or institutions) and market instruments.
Under the instruments, or goods of the international capital markets, is understood any financial requirement, defined in foreign currency (currency, bonds, shares, bills of exchange, etc.). The number of such instruments is growing rapidly, and this makes it possible to make a profit on such money capital, is free for a very short time.
Some of the instruments are securities certifying loan relationships. The other part is titles of ownership, confirming the participation of the subject in the ownership of the enterprise (mainly shares). The third part of the instruments are derivatives of the first two and insure these transactions. These are, for example, derivatives, the economic basis of which is stocks, bonds, and not real capital.
The bulk financial resources operates in the form of loan capital, provided on the basis of urgency, repayment and payment of interest. In the structure of loan capital, the leading place is occupied by bonded loans. Bank loans play a relatively modest role. Over the last ten years bank loans accounted for less than 20% of the capital raised by industrial companies and governments.
The leading place in the movement of state capital belongs to economic assistance, but its volumes are relatively small.
International financial relations at the beginning of the XXI century. are characterized by a rapid growth in the volume of transactions in the world financial markets.
With regard to various types of capital movements, it is determined that this indicator has increased over the past thirty years by 16-63 times, respectively, while the export of goods and services has grown only three times over this period. Statistics show that the doubling of the volume of world trade occurs every 17 years, and international financial flows have doubled on average every four years. These data confirm that financial relations have become a huge independent sector of the world economy. By the mid-70s of the XX century. financial operations were closely connected with the development of production and foreign trade. They have now largely moved away from real sector economy and are characterized by independent development.
The functioning of international financial markets takes place in a constantly changing environment, which depends on the state of the monetary system, the state of the balance of payments of individual countries, and the economic growth models of the leading countries. As a result of the heterogeneity of these markets, the process of international financial transactions is ongoing.
The constant movement of funds across national borders, due to the internationalization of production, the increase in the freedom of movement of capital, the development of information technology, has turned these relations into an integral part of the global economic system. Since the last third of the last century, financial markets primarily developed countries began to function not as local structures, but as communities united by common conditions, connections and patterns of development, which allows us to speak about the formation of the global credit and financial system. International financial transactions are factors that change the financial systems of individual countries.
The fulfillment of the international function of redistribution and the movement of capital are more characteristic of countries and territories where preferential regulatory regimes have been created. financial activities non-residents to attract capital from foreign banks and companies. Credit institutions in such territories that specialize in transactions with foreign legal and individuals that carry them out using special (external) accounts are separated from the accounts of residents of the domestic market and those accounts that provide owners with tax rebates, exemption from currency control and other perks. Thus, the domestic capital market is isolated from the external - international, and credit institutions that are located on the territory of the country and are engaged in international operations, are not integral part her economy. Operating on the territory of the host country, they conduct transactions external to it with non-residents, and in some cases with residents, if the latter is allowed by the rules of currency control. Therefore, such centers of international financing are called offshore, i.e. extraterritorial.
Previously, for the emergence of an international financial center, such prerequisites as a developed national banking system, a large stock exchange and a stable currency unit. In recent decades, most often this is enough for the country to have flexible financial legislation, the right to open foreign bank branches and branches, preferential taxation of income, a simplified procedure for conducting exchange and banking operations etc. Now, along with such traditional extraterritorial centers as New York, London, Tokyo, Paris, Zurich, Singapore, Hong Kong, Bahrain, Cyprus, Panama and others play an important role in international financial markets.
Despite the emergence of new centers of international funding, traditional centers (New York, London, Tokyo) remain out of competition. They have close links with other markets through affiliates and affiliated companies credit institutions. At the same time, the United States, in fact, is considered the world center of financial activity, and therefore to a large extent determine the dynamics and structure of international financial transactions.
General concepts. International financing is an economic relationship that arises on the basis of the provision and receipt of capital necessary for the reproduction of profits, form a system of transactions with foreign assets and settlements on them, in which residents of several countries participate.
The structure of international financing is considered from different points of view, depending on the objectives of the study - by subjects (institutions or institutions) and market instruments. Under the instruments, or goods of international capital markets, is understood any financial requirement, designated in foreign currency (currency, bonds, shares, bills of exchange, etc.). Their number is growing rapidly, and this makes it possible to profit on money capital, free even on the most a short time
Some of the instruments are securities certifying loan relationships. The other part is titles of ownership, which confirm the owner's participation in the ownership of the enterprise (mainly shares). The third part of the instruments is a derivative of the first two and insures these transactions. These are derivatives, the economic basis of which is stocks, bonds, and not real capital.
Instruments represent certain forms of capital movement. The main forms of capital movement are loan capital (international bonds, bank loans and others), entrepreneurial capital (portfolio and direct capital investments - shares), as well as economic assistance.
The bulk of financial resources (functions in the form of loan capital, which is capital in cash and commodity forms, presented on the basis of urgency, repayment and payment of interest. In the structure of loan capital, the leading place is occupied by bonded loans (Table 8.1). Bank loans play a relatively modest role. At the end of the 1990s, bank loans accounted for only 25% of the capital raised by industrial companies and governments worldwide.
There is also a division of capital according to the forms of ownership - private and state capital. Economic assistance occupies a leading place in the movement of state capital.
The nature of international financial relations. Last quarter of the 20th century marked by a rapid growth in the volume of transactions in the global financial markets. For various types of capital movement, the increase in volumes was 16-63 times in the 70-90s, while exports tripled during this period, GMP increased even less. If the last doubling of world trade occurred in 17 years, then international financial flows have doubled on average every four years.
These data indicate that financial relations have become a huge independent sector of the world economy. Until the mid 70s of the XX century. financial transactions were closely linked with the development of production and foreign trade. Now they are largely self-developing, loosely connected with the material economy.
The functioning of international financial markets takes place in a constantly changing environment, determined by monetary systems, the state of the balance of payments of individual countries, the models of economic growth of the leading countries. Due to the heterogeneity of these markets, the process of international financial transactions is ongoing.
The constant movement of funds across national borders, due to the internationalization of production, the increase in the freedom of movement of capital, the improvement of information technology, has turned these relations into an integral part of the world economic system. Starting from the last third of the last century, financial markets, primarily in developed countries, began to function not as local structures, but as aggregates united by general conditions, links and patterns of development, which makes it possible to speak of the formation of a global credit and financial system. International financial transactions are an emerging force that is transforming the financial systems of individual countries.
Centers for international financing. The fulfillment of the international function of redistribution and the movement of capital is more characteristic of countries and territories where preferential regimes for regulating the financial activities of non-residents have been created to attract capital from foreign banks and companies. Credit institutions specializing there in transactions with foreign legal entities and individuals carry them out on the basis of special (external) accounts, separated from the accounts of residents of the domestic market and providing tax rebates, exemptions from currency control and other benefits to the holders of these accounts. Thus, the domestic capital market is isolated from the external - international one, and credit institutions located on the territory of the country and engaged in international operations are not an integral part of its economy. While staying in the receiving territory, they conduct transactions external to it with non-residents, and in some cases with residents, if the latter is allowed by the rules of currency control. Therefore, these centers of international financing are called offshore, i.e. extraterritorial.
Previously, for the emergence of an international financial center, a developed national banking system, a large stock exchange and a stable monetary unit were necessary. In recent decades, the presence of flexible financial legislation, the right to open foreign bank branches and branches, the absence of income tax or its preferential nature, the simplification of the procedure for conducting exchange and banking operations, etc., is most often sufficient. Now, along with such traditional extraterritorial centers as New York, London, Tokyo, Paris, Zurich, Singapore, Hong Kong, Bahrain, Cyprus, Panama and others play an important role in international financial markets.
Despite the emergence of new centers of international financing, the traditional ones - New York, London, Tokyo - hold the leading position. They tower over everyone, have close links with other markets through branches and subsidiaries of credit institutions. At the same time, the United States is essentially the world center of financial activity and largely determines the dynamics and structure of operations.
The development of world production, as noted earlier, requires the constant use of significant amounts of capital in monetary and commodity forms. It comes from national and foreign sources. a lack of internal funds, the desire of capital for self-expansion cause the movement of huge masses various kinds capital between countries. Foreign and national capital ensures the continuity of the production process and its expansion on a global scale, the restructuring of the world economy as a result of the flow of capital from less profitable to more profitable sectors and industries, in addition, it increases the size of the production accumulation of capital, contributes to its concentration and centralization. A powerful impetus for development international capital is imbalance public finance in many developed and developing countries. Deficit Financing Mechanism state budgets acquired an international character. The international movement of capital is one of the most important tools in the competitive struggle of companies and countries. At the same time, it can cause deep disproportions in the world economy.
More on INTERNATIONAL FINANCING:
- International short-term financing of an industrial and trading company
- 8.1. General characteristics of international financing
- INTERNATIONAL SHORT-TERM INTERNATIONAL FINANCING
In Russia, in the most difficult conditions of the transition period to a market economy, great hopes were placed on the influx of external resources. The official authorities considered them as the engine of the investment process and economic growth. Russia was allegedly "doomed" to become the largest importer of capital. Reality dispelled these illusions. But isolationist sentiments, which have intensified after the first failures to integrate into the world capital market and complicated relations with international financial institutions, are also dangerous.
Trends and stages. In the USSR, external resources came in the form of bank and export credits, which provided commercial banks and export-import banks. AT small amounts Vneshtorgbank placed bonds. The Soviet Union entered the international financial institutions on the eve of the collapse of the state. Access to preferential official financing opened up only after the easing of the Cold War. Direct investments were not allowed mainly for ideological reasons. There were no corporate portfolio investments, since there was no object of such investment - joint-stock companies. In the context of the crisis caused by the transition to a market economy, the country began to receive ODA from the West on a bilateral basis, mainly in the form of subsidies. This was followed by loans from international financial institutions, direct investments, as well as in connection with privatization, portfolio investments in shares of Russian companies. However, due to the unsettled debt relations with the London Club, which represents the interests of private banks, lending from their side was limited.
In 1995, IMF loans accounted for more than 70% of external resources entering Russia (net flow); for direct investment - 1/4. The flow of resources through other private channels has been limited. This structure reflected the crisis Russian economy, as well as the weak integration of Russia into the global capital market.
In 1996, Russia made a sharp leap towards integration into the world financial market. This was expressed primarily in the securitization of the financial flow. Since 1996, the IFC has recognized Russia as a country with an emerging financial market, monitors the processes in its stock market, and publishes information necessary for investors.
In the process of integration of countries with emerging markets, the role of the public sector as a borrower is reduced and, accordingly, the role of the private sector is increasing. This trend was also observed in Russia, but specific gravity state as a borrower is still very high. In the first half of 1998, the public sector accounted for 61% of external resources, non-financial enterprises - 29%, banking sector- ten%. This indicates that the predominant mass of external resources is used inefficiently to finance the budget deficit (Table 10.5).
Table 10.5
EXTERNAL RESOURCE FLOW STRUCTURES (NET)
The influx of external resources, which reached $43 billion in 1997 (about 13% of GDP), was unable to reverse the downward trend in capital investment. A significant part of the resources received was of a speculative nature. Russia made the same mistake as other emerging market countries that were able to financial crisis, - widely and hastily opened its financial market, began to enter the world financial market too actively. But if in the countries of South-East Asia (SEA) the banking and corporate sectors are engulfed by the crisis, then in Russia the debt crisis of the public sector has been added to this. Two crises are simultaneously developing in Russia in the field of monetary and financial relations: one is in many ways similar to the modern financial crisis in Southeast Asia; the other is like the debt crisis of the 1980s in Latin America.
Thus, three stages can be distinguished in the short history of Russia's international credit and financial relations. The first - until 1995 inclusive, when Russia was poorly integrated into the world capital market and resources came mainly in the form of multilateral and bilateral official financing. The second stage - 1996-1997. - the time of rapid integration into the global capital market. The third stage - at the end of 1997, Russia faces a financial crisis. The culmination of this process was the crisis of August 17, 1998. The impulse to the crisis at the end of 1997 was given by the crisis in Southeast Asia. However, in the future, its development took place under the influence of internal factors. Moreover, the Russian financial crisis has become a breeding ground for the global financial crisis.
Consider the types financial flows in Russia. Among them, a large share is occupied by loans from international financial institutions (IMF, WB and EBRD) (see § 10.6 Chapter 10).
Direct investments- this is long-term investments, in the implementation of which the investor pursues strategic goals. For Russia, where the investment crisis has been going on for many years, this type of resource is the most preferable. However, direct investment does not always lead to an increase in capital investment and an increase in national wealth. It can be carried out by redistribution of property (especially in privatization) without subsequent investment in the company, which was the case in Russia.
The behavior of strategic investors, which are predominantly TNCs, is determined not so much by trends in the global and national financial markets as by the goals of globalization of production. It is more stable than the behavior of portfolio investors. However, in 1998 there was a noticeable decline in direct investment in the Russian economy due to the financial crisis.
Foreign investors obtained the right to operate in Russia in 1987. Participation foreign capital allowed only in the form of joint ventures (JV). The share of the foreign partner could not exceed 49%. The joint venture was granted a number of benefits (tax, customs, etc.). Gradually, the procedure for the formation of a joint venture was simplified, and benefits were expanded. In 1990, foreign investors received the right to create firms with 100% participation of their capital.
In July 1991, the Fundamentals of Legislation on Foreign Investments in the USSR and the Law of the Russian Soviet Federative Socialist Republic on Foreign Investments in the RSFSR were adopted. This law is still in force, although it is outdated and new legislation is being developed.
Foreign investors in Russia are granted national treatment. This means that the conditions for their activities cannot be less favorable than for residents. However, a number of benefits granted to foreign investors in the late 1980s have become invalid. The transfer of foreign investors from the preferential regime to the national one is also observed in a number of other countries. However, this change has weakened Russia's position in the competitive struggle, especially since many neighboring states continue to provide various benefits to foreign investors. A number of entities also attract foreign capital, creating favorable conditions for it.
When developing mineral resources in Russia, primarily oil, a system of product distribution (production sharing) is applied based on the relevant law. This system is based on the mode of share distribution of production between the investor and the state - the owner of the subsoil. A foreign company in this case acts as a contractor that has concluded a contract for work, including exploration of the subsoil. In the event of a negative result, the loss is usually borne by the foreign investor. With the successful implementation of the project, the contractor is reimbursed for all costs at the expense of the extracted products. One part of the extracted raw material takes the form of a payment to the state for the use of subsoil. The other part is divided into "compensation product" and "profitable product", which is distributed between the investor and the state - the owner of the subsoil.
This system has been used in developing countries since the 1960s. It, leaving the ownership of the subsoil to the state, saves it from large expenditures on exploration and capital construction. For an investor, this form of cooperation is beneficial in that it provides him with guaranteed supplies of raw materials.
When choosing a place to invest capital, a direct investor pays attention to the investment climate. This is a broad criterion, which takes into account the prospects for economic growth (and, consequently, market expansion), the macroeconomic situation, political stability, the availability of an appropriate political, social, economic infrastructure, tax and customs regimes, etc. Even with favorable comparative advantages (cheap skilled labor, the presence of deposits of non-renewable resources, etc.), a country may remain unattractive to investors due to an unfavorable investment climate. The current investment climate in Russia slows down the inflow of strategic investments. Factors holding back their growth include instability that does not suit investors, tax and customs systems, bureaucracy and corruption.
In 1997, in connection with the positive changes emerging in Russia, the inflow of direct investment increased sharply and amounted to more than 6 billion dollars, pushing Russia into fourth place among countries with emerging markets (after China, Brazil and Mexico) in this indicator. Direct investment amounted to 2% of GDP, which is in line with the average for countries with emerging markets. But that was just an episode. In 1998, the inflow of direct investment dropped to $2-2.5 billion, and Russia found itself below the top ten major recipients of direct investment.
Accumulated direct investment at the beginning of 1997 was estimated at $12.5 billion. This is a negligible amount compared to the corresponding world indicator ($2.7 trillion in 1995). However, Russia allowed this type of activity on its territory only from the end of the 80s. In 1997, the volume of production industrial enterprises, who were in full or partial foreign ownership, amounted to only 3-4% of the total volume of Russian industrial production. In exports and imports, the figures were significantly higher - about 8 and 11%, respectively. Unlike a number of countries with an export-oriented economy in Russia, foreign companies spend more currency than earn it.
Foreign capital is invested mainly in sectors that give quick returns, as well as in the development and processing of raw materials, primarily in the oil industry. Industries with high profitability include trade and catering, financial sector, food industry. These sectors, unlike heavy industry, are characterized by low capital intensity. With a relatively modest investment, they provide a rapid turnover of capital and a high rate of return. However, in countries that effectively use foreign capital, priority is given to other industries.
The structure also determines their territorial distribution. In terms of accumulated investments (data as of July 31, 1997), Moscow occupied the first place by a wide margin - 57%. Followed Tyumen region(where investments in the oil industry are concentrated) - 5%, St. Petersburg - 4%, Moscow region - 3%, Tatarstan - 2%.
Since 1990, foreign investors have the right to create enterprises with 100% participation. However, most firms in Russia are created in the form of joint ventures. This type of activity is also common in other countries with emerging markets, since the local co-owner is better oriented in the environment, has connections.
In many developing countries, to attract foreign direct investment, especially export-oriented, are using free economic zones(SEZ). A simplified regime for the registration of foreign capital is introduced on their territories, it is provided with tax and other benefits, and liberal foreign trade and currency regimes operate. The first acts on the creation of SEZs on the territory of Russia were adopted in 1990. The Law on Foreign Investments formulated the goals of creating economic zones and lists the benefits generally accepted in world practice that can be provided to investors.
In Russia, the formation of SEZs is proceeding chaotically, without a serious development of their strategy, world experience is not sufficiently taken into account. They tried to get the status of FEZs in which there were no elementary prerequisites for their formation (a well-established transport network, infrastructure, conditions for foreign trade relations, etc.).
The most famous SEZs are in the area of Nakhodka and Kaliningrad. However, in general, in Russia SEZ have not become an important tool for attracting direct investment.
Direct investment (in terms of volume and structure) did not meet expectations. TNCs view Russia as an area for risky capital investment and are very cautious. Despite this, the financial crisis once again proved the advantages of direct (strategic) investments over portfolio and other forms of financial flows.
Portfolio investment in equity securities. In Russia, portfolio investment in shares includes share investor, not exceeding 10% of the share capital of the company. To attract portfolio investors, it is necessary to have joint-stock companies open type and the stock market. Therefore, portfolio investment in the Russian economy began later than direct investment. stock market corporate valuable papers began to take shape with the start of privatization in 1993. Foreign investment funds until the financial crisis of 1998, they were active in the Russian market and contributed to its formation and development.
Precise data regarding volume portfolio investment in stocks in Russia are absent. Portfolio investments have been recorded in the balance of payments only since 1995. For 1995-1997. their inflow amounted to $3.5 billion. Other estimates are several times higher than this figure. On the eve of the financial crisis, non-residents owned 2/3 of the shares in circulation. This figure excludes direct investment, which is not normally offered for sale. The high proportion of non-residents in the corporate securities market is also characteristic of many other emerging markets.
Shares of Russian companies were considered undervalued, and this helped to attract portfolio investors. Those who entered the market during its formative period made huge profits from the rise in stock prices. In 1996, the Russian stock market was in second place in the world in terms of share price growth, in 1997 it was in first place. Income was derived solely from the exchange rate difference, since no dividends were actually paid. This testified to the separation of the stock market from the real sector, to a weak connection between the results of the financial activities of companies and the income of investors. Such a "disconnection" is rare even on emerging markets.
Another weakness of the Russian stock market was that it traded shares of a limited number of companies, mainly raw materials, energy, telecommunications, food industries. Approximately 70% of the turnover was concentrated on the shares of 10-12 companies. As the practice of emerging markets shows, this situation is typical for countries where stock markets which the tone is set by non-residents. The latter show interest mainly in "blue chips" - securities of high liquidity.
Despite the low liquidity of the shares of Russian companies, the market capitalization rapidly increased due to the growth of the share price (in 1996 - $37 billion, in 1997 - $128 billion). The ratio of capitalization to GDP increased from 10% to 35%. According to this indicator, Russia has come close to developing countries with the most developed stock markets. However, it was only an appearance. successful development, testified to the overheating of the market conditions, strong speculative trends, which was facilitated by non-residents.
The financial crisis in Southeast Asian countries in October 1998 hit primarily the Russian stock market. Portfolio investors began to leave him. If until August 17 the state managed to stabilize the foreign exchange market through foreign exchange interventions, then there were no opportunities for stabilizing the stock market. The share price on the Russian market fell sharply. In 1998, trading in shares of second and third tier companies actually ceased. On a limited scale, only blue chips are sold and bought. The market capitalization of the 14 largest Russian companies fell to $16 billion, i.e. 7 times compared to October 1997. With such a high degree of risk, even funds that engage in risky operations do not work. It is estimated that no more than 30 investment companies at the end of 1998 did not completely curtail their activities in Russia, while during the heyday of the market their number reached 200.
However, behind the stocks that have fallen sharply in price are really working enterprises or huge property if they are temporarily not working. Portfolio investors' interest in the Russian market may revive when the the economic growth and the risk will be reduced.
Russian companies enter the stock markets of developed countries through depositary receipts, mainly American depositary receipts (ADRs). Russian companies started issuing them at the end of 1995. Depository receipts issued by some banks, unlike corporate ones, were not in great demand.
At the end of 1997, 25 programs had been implemented or launched. By May 1997, the amount of depositary receipts of Russian companies reached $6.5 billion. Due to the financial crisis, the launch of these programs was suspended. The majority of Russian depositary receipts belong to the first level of public offering. Two companies, VimpelCom and Lukoil, received the right to issue third-level receipts. Some companies have used the option of private issuance (under Rule 144A), which does not require permission from the Federal Securities Commission, but the number of investors is limited to a small circle of highly qualified market participants.
The entrance of Russian companies to Western stock markets could take place only after the development of the domestic stock market and the achievement of a high rating by Russian companies. The ADR market contributed to the development of the domestic stock market. The rise in the share price on the Russian stock market was due to the high demand for these shares on foreign markets. But at the same time, playing on the difference in prices on the world and domestic markets increased the speculative excitement around the shares of Russian companies.
Issue of debt obligations. Foreign investments in debt securities are attracted by issuing on the world market and attracting non-residents to the domestic market. In Russia, these methods of resource mobilization were used to a large extent by state institutions and, to a lesser extent, by companies. The latter gave a clear preference to equity securities, which are not associated with an increase in debt.
In the 1990s, 70-75% of long-term financial flows in the European market came from loans in the form of securities (mainly Eurobonds) and only 25-30% from loans. The cost of Eurobonds was lower than the cost of other loans and credits raised to finance the budget deficit. Therefore, the central government in 1997 and the first half of 1998 preferred this source.
Since November 1996, the central government has carried out 9 issues of Eurobonds in the amount of 11.5 billion dollars. 6 loans were denominated in dollars, 2 - in German marks, 1 - in Italian lira. Coupons on the first loans amounted to 9% per annum, the last 12.75%. The nominal rate was equal to 82.9% when placing the first loan and 67.5% when placing the last one. The deterioration in the placement of loans was associated with a fall credit rating Russia.
In 1996, before the first Eurobond issue, Russia's sovereign rating (BB) was set by Standard & Poor's, as well as by Moody's and Fitch Ibka. This is a rating of securities classified as speculative, it is close to the lower limit investment grade(VVV). At that time, Argentina, Mexico, India, the Philippines, Hungary, and Poland had the same rating. Turkey, Venezuela, Brazil had a rating of B. By the standards of an emerging market country, Russia received a quite acceptable rating, which gave hope to enter the group of countries with an investment rating.
To finance budget deficits, along with Eurobonds, a method of raising resources was used, such as the sale of securities issued on the domestic market (GKO-OFZ) to non-residents. , where a wide admission of non-residents to the domestic market of government securities caused a financial crisis in 1994-1995).
* GKO - state treasury obligations;
OFZ - federal loan bonds.
Access for non-residents to Russian market GKO was allowed since February 1996. Prior to that, they acquired GKO through intermediaries, since the yield on them was very high. Initially, the operations of non-residents were strictly regulated. In particular, a limit was set on the return on investments of non-residents, restrictions on the transfer of funds. However, in April 1997, the Central Bank of the Russian Federation approved a schedule for the phased liberalization of investments by non-residents in GKO-OFZ.
Since April 1, 1998, all restrictions have been lifted. The Russian authorities, seeking to expand the GKO-OFZ market, increase competition on it, and reduce the yield on securities, completely opened this market, although the experience of a number of countries with emerging markets (Mexico, countries of Southeast Asia) testified to the riskiness of such actions. Since non-residents gained unlimited access to the Russian government securities market, the normal process of internal government debt formation, limited by residents, has ended and the construction of the state financial pyramid has begun.
The share of non-residents in the GKO-OFZ market reached approximately 1/3 of its total volume (about $20 billion, significantly exceeding the size of Russia's official gold and foreign exchange reserves. The open market for government securities has become a channel through which Russia has particularly acutely felt the negative impact of the global financial crisis.On August 17, 1998, simultaneously with the devaluation of the ruble, it was announced the suspension of operations on domestic public debt for residents and non-residents.
In modern practice, debt problems are usually resolved through negotiations and debt restructuring. Unilateral actions, especially the suspension of payments domestic debt non-residents, a rare occurrence. In addition, while the mechanisms for settling external debt are sufficiently well developed, there are no schemes tested in practice with respect to domestic debt.
Eurobonds and GKO-OFZ were the main instruments for attracting external resources through securities. In addition, even before using these instruments, non-residents invested their funds in Russian domestic foreign currency bonds. After settling the debt through the London Club on secondary market related debt securities also appeared. For them, the financial crisis also had a catastrophic effect, and their quotes fell sharply.
Bank loans. The influx of external financial resources in the USSR occurred mainly due to syndicated loans from international banks and export credits. Banks, not without reason, considered the USSR as a reliable debtor. However, after serious violations in servicing the external debt in 1991-1992. Banks have drastically reduced their lending. The net inflow of bank loans in 1994 turned out to be close to zero, and in 1995 it was negative.
However, since 1996, bank lending began to revive rapidly. This was facilitated by the strengthening of the international positions of Russian banks. About 100 banks passed international audit, about 40 of them received ratings from international agencies. If a foreign investment While the companies were attracted mainly in the form of direct or portfolio investments in shares, for banks, loans from international banks were a source of increasing their resources. As of December 1, 1997, the ratio of foreign liabilities to net assets banking system Russia, having reached the maximum level, amounted to 14%, i.e. at the level of Southeast Asian countries on the eve of the crisis. For some Moscow banks, which accounted for 90% of external loans, this figure was above average (SBS-AGRO - 38%, Imperial - 28%). As of January 1, 1998, the share of non-residents in the total volume of interbank loans attracted by Russian banks reached 60%.
The flow of medium-term and long-term banking resources resumed both in the form of syndicated (consortium) loans and export loans. In Soviet times, the government made extensive use of syndicated loans, resulting in a debt of $28 billion. However, the Russian central authorities practically did not resort to such loans, preferring the other forms of external borrowing noted above. In addition, as world experience shows, international banks themselves try not to deal with borrowers who have violated debt service schedules. Therefore, in Russia, the main recipients of syndicated bank loans have become commercial banks, as well as some large companies and individual regions. Significant advantage syndicated loan is that it is provided in an unrelated form and usually without guarantees.
Although syndicated lending does not require state and other guarantees, this does not mean a complete lack of control over the borrower. The borrower may be agreed to comply with the agreed standards, not to pledge certain types of assets, etc.
Russian banks preferred loans over raising resources in the form of Eurobonds, since in the first case the costs are lower and the procedure is simpler. In addition, they got the opportunity to establish business contacts with leading Western banks.
Syndicated loans brought high profits to Russian banks. Receiving loans at 9-12% per annum, they provided the final borrower with a loan at least at 20%. They were mainly firms engaged in foreign and domestic trade. Syndicated loans were also used for operations on foreign exchange market. The environmental impact of syndicated loans raised by banks was low. As a result of the 1998 crisis, many leaders in syndicated loans were among the problem banks (Rossiyskiy Kredit, Inkombank, Tokobank, Mosbusinessbank, Menatep, Imperial).
Syndicated loans have also attracted some major Russian companies. Gazprom was the first to enter this market, followed by Lukoil, Tatneft, Rostelecom, and others. However, companies preferred equity instruments to mobilize external resources. Of the regions, Moscow has achieved the greatest success in the syndicated loan market.
An export loan, unlike a syndicated one, is of a tied nature and from this point of view it is less attractive to the borrower. A loan is issued by a bank in the exporting country, usually directly to the importer-borrower for crediting commodity deliveries, usually machinery and equipment. The borrower is obliged to use the loan to purchase goods in the creditor country. Export credits are usually of an investment nature.
Such lending, carried out for a period of 5-8 years, is subject to numerous risks. Western states, interested in promoting their equipment to world markets, insure export credits and partially participate in these credits, as a result of which their rates are lower than market rates.
Export credits are mostly issued under the state or other form of reliable guarantee. The Russian authorities were reserved about export credits, despite their investment nature. This position was argued by the fact that, due to their connectedness, they contribute to the growth of production and employment in the creditor country, and not in the recipient country. It can be noted that many other countries with emerging markets also prefer other forms of attracting resources for investment needs, and the share of export credits in the flow of financial resources fell in the 1990s.
The government provided in 1993-1997. $20 billion in export credit guarantees. However, a significant number of enterprises that received guarantees went bankrupt or disappeared. But even normally operating enterprises do not fulfill their obligations to the budget. So in May 1998 Russian government decided to limit the provision of export credit guarantees. However, after the financial crisis, when access to other financial resources was limited, this practice was resumed.
It is important for enterprises to attract loans without state guarantees. In Russian practice, such a form of guarantee as mutual supply agreements is used. In these cases, the proceeds from the supply of export goods serve as collateral for the loan.
However, for enterprises operating in the domestic market, mutual supply agreements are not very suitable. For them, project financing is most acceptable. But in Russian conditions this way financing, including with the attraction of export credits, is problematic in terms of the technique of its implementation. In addition, it is expensive, requiring large expenditures for preliminary examination.
The accelerated stage of Russia's integration into the world capital market, accompanied by a rapid uncontrolled opening of the domestic market for non-residents, ended with a financial crisis that threw the country back in many directions. To a certain extent, this was due to the global financial crisis. But the main reasons are internal. Nevertheless, the integration of countries with a developing financial market, including Russia, is an objective process, which, however, as the practice of many countries has shown, should be subject to control and regulation.
Mikhail Semyonov [email protected]
Each dynamically developing enterprise is forced to make a decision on the acquisition of new fixed assets, which are financed by long-term funds. Enterprises have two sources of long-term financing: own funds and external long-term funds. The choice between internal and external sources of financing depends on the business cycle of the enterprise: the higher the profitability, the less the enterprise relies on external sources. External financing is provided by investors and lenders. Investors finance the enterprise by buying its securities in the financial markets. These securities are divided into debt and equity.
Currently, debt financing is preferable - regardless of the country, debts make up the bulk of external financing. In turn, new share issues represent a small and ever-decreasing share of international long-term financing. As a rule, an enterprise uses various instruments for debt financing, depending on whether they turn to specialized financial intermediaries or enter the market without intermediaries. An alternative to the direct public offering of its securities for the borrower is to obtain a loan from a specialized financial intermediary, which in turn attracts deposits or issues its own securities against this loan. These alternative instruments are usually commercial bank loans for short and medium term loans, or for long term loans, privately placed bonds that are sold to a limited number of investors - insurance companies and pension funds. The bonds in question are much more similar to loans than publicly placed securities, since the mode of circulation of these bonds (for example, the possibility of changing the terms of the issue by agreement before the maturity of the bond, the right of the bond holder to prohibit the issuer from resorting to new loans, selling assets and other complex conditions ) actually coincides with the terms of the loans.
1. Modern tendencies international capital markets
Historically, the enterprises of the countries of the Anglo-Saxon market-oriented financial system with developed institutional investors ( pension funds, mutual funds, universities, others non-profit organizations, insurance funds and others), such as the US, UK and others, are financed directly by issuing their securities on financial markets. In the countries of the alternative bank-oriented financial system - Japan, Germany, France and others - enterprises resort mainly to bank borrowing. In the financial markets of the countries of this system, especially in the Japanese markets, there has been a clear tendency to borrow funds themselves through the sale of issued securities on the capital market, instead of obtaining loans from financial intermediaries. This process is called securitization (from the English security - security). Departure from traditional system Japanese companies, for example, is a consequence of the Asian crisis in the second half of the 1990s, which exposed the shortcomings of the bank-oriented financial system. The main cause of the crisis in this perspective is the so-called "keiretsu" - huge financial and industrial groups with the main bank in the center, which distributes cheap resources not on the basis of market competition, but according to the criterion of personal acquaintances and connections, thus wasting hundreds of billions of dollars accumulated by heavy labor investments in unprofitable grandiose projects. Gaining market share through massive industrial investment was prioritized over profit. For example, the return on equity in the United States before the Asian crisis in 1995 exceeded that of Japan and Germany by 50%. And this is with a lower propensity to save Americans. This paradox is due to the strict accountability of American management to shareholders, whose performance criterion is profit per share (and not market share); financial transparency, which allows investors to make informed decisions; and the prevailing perfect competitive environment that punishes irresponsible creditors and ruins inefficient borrowing companies. Thus, after the crisis, the cost of bank borrowing increased due to the increased competition of companies in the long-term financing market, whose projects began to be financed by banks more and more in accordance with market criteria for the effectiveness of investments. The process of financial deregulation, which has been going on for about two decades, initiated by governments in order to develop local financial markets, also contributes to the rise in the cost of bank loans. Since, as a result of the removal of restrictions on capital markets, the cost of attracting deposits by banks increases in conditions when, with the abolition of various legislative restrictions on financial markets, banks to a certain extent are no longer monopolists and cannot set relatively low interest rates on attracted deposits, which are considered as sources loans. On the other hand, as a consequence of the process of deregulation, the value of funds received on the financial market without intermediaries is decreasing, the use of which is no longer the only acceptable alternative. These two trends of declining cost of capital raised without intermediaries and rising cost of bank borrowing are driving the development of securitization. Another positive trend in the international markets for long-term financing is the reduction in the cost of borrowing based on the public offering of their securities for little-known companies. Historically, they have borrowed from banks or, as in the US, placed bonds privately with insurance companies. But in view of the development of telecommunications and other technologies, information about borrowers has become available not only to specialized lenders. With cheap and reliable information about the borrower, it has become more preferable for investors to bypass intermediaries in the face of banks and finance not only well-known and impeccable borrowers.
These booming telecommunications and technology developments and financial deregulation, which removes structures that prevent competition and protect local markets, are blurring the distinction between local and foreign financial markets. The globalization of financial markets is leading to unprecedented competition between key financial centers and institutions, further reducing international financing costs. To return capital, financial centers that have lost their leadership are forced to abandon outdated and costly restrictions. The process of deregulation has received an additional impetus in countries with a bank-oriented financial system due to the growing conviction of the masses that this system does not contribute to adequate lending to small and medium-sized businesses, which is the basis of growth and innovation. As a result of these processes, the volume of funds raised in the international capital markets has increased dramatically over the past decade. In 1990, this figure amounted to 450 billion dollars, and in 1997 - already 1.8 trillion. Doll.
If competition is the engine of the international financial system, then innovation is its fuel. Financial innovations allow shifting and diversifying risks. They also enable companies to penetrate previously inaccessible markets and allow investors and issuers to bypass tax law. Companies can issue securities in such a way as to occupy a specific niche in the capital market and raise funds in this way at a lower price with relatively the same risk. In the 1990s, the Swedish export credit corporation SEK borrowed about two billion dollars for one year. To reduce financing costs, SEK applied a financial innovation. The company organized the issue of bonds, divided into two parts - coupon and discount, and sold them in parts to investors. Coupon bonds were in the interests of a Japanese insurance company, which was looking only for securities that bring interest income. Whereas the discount portion was sold to European investors who prefer returns in the form of capital gains as taxable at a lower tax rate than interest income. As a result of this division of the corporation, it was possible to carry out a financial transaction that was worth more in parts than in total. The solution to the problem of avoiding taxation was embodied in the scheme used by Sibneft in 1997, when it placed three-year Eurobonds for $150 million. The company received a loan from Salomon Brothers International Limited, which subsequently issued bonds in the West against this loan. The holders of these bonds, of course, did not have to pay taxes in Russia. The company intends to apply a similar scheme to the planned issue of three-year Eurobonds in the amount of $250 million in October 2002.
Financial innovations have dramatically increased the mobility of international capital. International capital flows through major international financial centers such as London, Tokyo and New York. Political stability and minimal government interference are prerequisites for the formation and development of these centers. Not surprisingly, London has a dominant position here, due to the historical deregulation of its financial market. It was here that the European market arose about 33 years ago. In general, international financial markets develop wherever local legislation does not prohibit them and where they manage to attract participants. Development is carried out in two categories: foreign financing and euro-currency financing. In the first case, the entity is financed on the foreign market in local currency, in the second - also on the foreign market, but in the currency of a third country.
2. Foreign long term financing
Foreign long-term financing breaks down into raising funds in a foreign stock market with the help of foreign bonds and shares and obtaining foreign loans.
2.1 Foreign bonds
The foreign bond market is simply part of the local market for bonds issued by foreigners. Foreign bonds are also governed by local laws and must be denominated in local currency. They are issued at fixed and floating rates and as bonds derived from shares. Bonds with a floating rate have coupons, the interest on which is reviewed every 3-6 months. The new rate is set as a fixed premium on the changing rate on government bonds or promissory notes of reliable issuers. Equity derivative bonds may be convertible or in the form of warrants. In the first case, they are converted into a certain number of shares before the maturity date. In the second, the holder of warrants gets the right to buy a certain number of shares within due date. For more than 20 years, convertible bonds have been widely used on the global stock markets to raise capital, finance development programs and other corporate purposes. The volume of convertible bonds placed on the world's major markets is tens of billions of dollars a year. Traditional buyers of convertible bonds are institutional investors in Western Europe, mainly large funds. Large volumes are also placed on exchanges in Southeast Asia. US investors have taken an active role since the early 1990s with the introduction of Rule 144A, which allows issuers, including foreign ones, to trade public issues in the US on unregistered private exchanges. As a result, these foreign issuers may not comply with stringent US Securities and Exchange Commission (SEC) disclosure and reporting requirements. Also, the popularity of convertible foreign bonds is explained by the fact that the issue of convertible bonds has a lower cost of servicing compared to the issue of ordinary foreign bonds due to the fact that the investor has the opportunity to receive income from converting bonds into shares if the market price of the latter increases significantly. In addition, the requirements for the issuer are less stringent than in the case of direct borrowing.
2.2. Foreign shares
The second component of the foreign stock market is financing by selling shares on foreign markets in the currency of these markets. The advantage of this source of financial resources lies in the possibility of diversifying the company's risk from selling its shares in one national market. As a result, the company is isolated from the possible influence of large local shareholders. Another positive moment is manifested in the case of too large emission, which the local market cannot place. In addition, the expansion of the company's investor base, especially from leading financial centers, increases the demand for shares and, consequently, leads to an increase in their quotes. This form of funding, especially for branded companies, is a kind of promotion. The trademark in the form of the name of the issuer gets into the mass media covering events in the financial markets. Financial managers of corporations find for themselves other additional reasons for the need to issue shares abroad. This is supported by statistics on so-called Yankee shares sold by foreign issuers in the US. During 1991-1996. their value has increased from 5 to 16 billion dollars. Corporations issuing Yankee stock must meet certain requirements. These disclosure requirements financial information and reporting - one of the highest, which entails significant costs. Therefore, a cheaper alternative to this instrument is American Depositary Receipts (ADRs), which allow you not to comply with these requirements. ADRs indicate that their owners own shares in a foreign corporation and give the holders certain shareholder rights. Shares do not cross national borders, but remain in local custodian banks on the territory of the issuing country of these securities. ADRs may be distributed by public or private offering. Public offering ADRs are sold to a wide range of investors. Private placement ADRs are distributed only to a limited number of shareholders. Public offering ADRs are divided into levels 1, 2 and 3. Level 1 ADRs are issued for shares in secondary circulation and are traded on the US over-the-counter market. Level 2 ADRs are also issued for shares that are in secondary circulation, but are traded through the NASDAQ OTC system and US stock exchanges, which significantly increases their liquidity. ADRs of the third level are issued for shares at their initial placement, are used to increase equity issuer and are traded on the NASDAQ OTC and US stock exchanges. Thus, ADRs, for example, allow US investors to purchase shares of Russian ADR-issuing enterprises without entering the Russian market, exporting shares from Russia to the United States, and obtaining appropriate permits to bring capital into Russia. American Depositary Receipts are actively traded in almost all world markets. This confirms the fact that they are listed on exchanges and electronic trading systems such financial centers as New York, London, Singapore, Berlin, Frankfurt am Main and others. For example, the total volume of listed depositary receipts is approximately 5% of the total number of securities traded on the top three US exchanges. Over the past two years, the market for ADRs issued for the shares of Russian companies has become one of the most dynamically developing markets in the world. About twenty Russian companies have already completed ADR issuance programs. For foreign companies, ADRs are currently the most attractive form of investment in Russian securities, since the latter are significantly ahead of most in terms of growth rates. foreign shares, and are also the main way to acquire large blocks of shares. Overall, from the end of 2000 to November 9, 2001, the Russian Bank of New York ADR index rose by 31.4%, despite a general decline in the Bank of New York ADR indices for developing countries by 17.8% and for all countries by 24.0% over the same period. For domestic firms, ADRs provide an opportunity to enter into transactions with major Western companies wishing to invest cash into the securities of Russian issuers, but who are afraid to enter our market directly due to many problems, such as, for example, imperfection legislative framework, a vast territory and the lack of a well-functioning mechanism for re-registration of ownership of securities. It is obvious that for large international companies it is preferable to work with ADRs that are familiar to them, excluding the risks that are typical for shares of emerging markets. Purchasing and selling ADRs outside the country of issue of shares also allows you to avoid paying income tax and other local taxes.
The authorized depository bank that issues ADRs for shares of Russian companies and makes settlements on them is The Bank of New York, custodial services (services of the bank-custodian of shares) are provided by The Bank ING Eurasia. ADR trading on Russian shares carried out primarily on the New York NEWEX and the New York Stock Exchange NYSE. In 2001, NEWEX began trading ADRs for shares in RAO UES of Russia. On February 9, 2002, Wimm-Bill-Dann Foods announced an initial public offering (IPO) program. These ADRs have been listed on the NYSE. The ADRs were placed at $19.5 each, each equaling one share. 10.62 million receipts were placed, which is 25% of the capital plus one share. In addition to this company, ADRs for the shares of only four Russian companies are traded on the NYSE: OAO Rostelecom, OAO Tatneft, OAO VimpelCom, and OAO Mobile TeleSystems.
2.3. Foreign bank loans
In addition to foreign financing in the stock markets, companies attract foreign bank loans, which represent the share of local bank lending that is owed to foreigners for use abroad. As with foreign bonds, local laws often limit the amount of bank loans available to foreigners. Lending to domestic business in international financial markets is carried out in the form of syndicated loans. These loans are provided by several lenders to one borrower, which allows the lender to significantly reduce the risks. Since the mid-1990s, Russian enterprises have been quite successful in borrowing money on a syndicated basis in the London and French markets. commercial loans and also in the USA. In Russia, before the crisis in August 1998, foreign banks issued from 8 to 10 billion dollars of syndicated loans to various commercial structures.
Credit was given mainly to enterprises with transactions and, in general, annual sales of at least $50 million. Moreover, either these are stable domestic sales or exports. Very high demands are made by the organizing bank and other participants of the loan on transparency financial reporting borrower. In addition, the borrower must have a positive credit reputation and the majority of his income must be denominated in the currency of the loan.
This form of funding is well suited for borrowers who do not have much experience in international markets. Having started a credit history with small loans, the borrower can further expect to reduce rates and increase the volume of his borrowings in foreign markets, the transition to more complex forms of international financing, such as ADRs and Eurobonds, which will be discussed below. In general, domestic entities, when entering international financial markets, relatively rarely resort to foreign bank lending. Foreign bank lending is carried out mainly at the intergovernmental level.
3. Eurocurrency long-term financing
Eurocurrency long-term financing represents the rest of the international long-term financing. Unlike foreign, Eurocurrency long-term financing is carried out in foreign currency for the country where it was applied. Moreover, the division into three instruments remains similar to the division in foreign funding. Namely: stocks, bonds and loans.
3.1 GDRs
If depositary receipts issued in dollars are placed on markets outside the United States, then we are talking about global depositary receipts (GDRs). The issue of GDRs is an integral part of the second direction of the international capital market - Eurocurrency long-term financing. GDRs are traded on the European market, are issued at initial public offerings and are listed on stock exchanges. The principle of their circulation is the same as that of the ADR. Similarly, GDRs are securities issued not by the issuer itself, but by the depository bank, which also gives them greater weight in the eyes of potential investors, in particular, foreign ones. At the end of December 2000, JSC Aeroflot entered into a deposit agreement with Bankers Trust Company for the issuance of level 1 global depositary receipts, in the amount of 20% of authorized capital. Bankers Trust Company is part of the Deutsche Bank group, which is an impeccable guarantee of the reliability of these receipts. Russian GDRs are listed primarily on the London and Frankfurt stock exchanges. GDRs of about a few dozen Russian issuers are listed on both exchanges. Surgutneftegaz, Yukos, RAO UES of Russia, Mosenergo, Tatneft, Irkutskenergo, and Samaraenergo make up the largest share among them.
3.2 Eurocurrency loans
In addition to GDRs, Eurocurrency long-term financing includes Eurocurrency loans and Eurobonds. Eurocurrency loans are denominated in freely convertible currency invested in a bank located outside its country of origin. The emergence of the euro-currency credit market after World War II is connected with the fears of the USSR that its dollar deposits in American banks could be arrested at the request of American citizens who lost their property during the revolutionary transformations in Soviet Russia. As a result, these deposits were transferred to British and French banks. But the real reason for the existence and development of the Eurocurrency market lies in the existence of government restrictions, such as reserve requirements for deposits in banks, taxation of banking activities, limiting the interest rate on deposits and loans, creating an unequal position for domestic and foreign banks. However, in recent times there has been a tendency to lift restrictions and equalize costs and interest rates in the local and Eurocurrency markets.
The most important characteristic of the Eurocurrency market is expressed in the fact that loans here, in contrast to the local credit market, are carried out on the basis of a fixed premium over a daily changing one. interest rate LIBOR (London Interbank Offered Interest Rate). This allowance is usually reviewed every six months. Its value depends on the level of risk perceived by the investor for lending to a particular borrower. With minimal default risk, the premium may even be negative. Some borrowers with high credit ratings (various large corporations and banks) and supranational institutions (such as the World Bank) borrow at a price below the LIBID (London Interbank Demand Interest Rate). LIBID is the interest rate paid by one bank to another for a deposit attracted, and is set below LIBOR by about 0.125%. This practice expresses a tendentious phenomenon of reducing the role of LIBOR as a starting point in setting the price of a loan. On the other hand, in a highly uncertain environment, the LIBOR markup in the form of a risk premium can be as high as 4-5%. In June 2001 Zenit has attracted a Western syndicated Euro-currency loan in the amount of $20 million for one year at a rate of LIBOR + 4%. This is the first such case since the Russian default in 1998. For corporate borrowers relying on Western funding, there was a benchmark of the value of money. The loan was arranged by the London Standard Bank. The loan was led by Credit Suisse First Boston, Dresdner Bank, Moscow Narodny Bank and Ost-West Handelsbank.
The loan is quite expensive, but the main achievement of "Zenith" in this case is not to raise money, but to create a credit history. Although on domestic market at such a rate, it would not be easy to borrow a significant amount in foreign currency. In principle, this is a confirmation that the trust in Russian banks returns. It can be expected that other banks will also start borrowing on the foreign market, but they will wait for more favorable conditions. Prior to the 1998 crisis, private banks received syndicated loans at lower interest rates (average LIBOR + 3%).
Eurocurrency loans are issued for a period of approximately three to ten years. Currently, there is a tendency to increase this period. Ten-year loans for prime borrowers are not uncommon. Lenders in this market are exclusively banks, which, as a rule, form syndicates for large lending. The bank that received the loan request usually manages the syndicate. He invites several more banks to participate in lending. Depending on the size and type of loan, the syndicate receives a commission from 0.25% to 2% of the loan amount. In case of selection credit line for the unused part of the loan, the borrower pays about 0.5% on an annualized basis, and penalties are paid in case of early, unagreed repayment of part of the debt. At the end of all preliminary calculations of future payment flows, the borrower must determine the effective interest rate, which, in contrast to the one fixed in the future loan agreement, is equal to the fraction of the actually incurred costs of organizing and servicing loans by the amount of funds actually received. The resulting effective interest rate can influence the decision financial manager about the choice of a source of long-term financing. If we compare Eurocurrency lending and lending in domestic markets, then the interest spread (the difference between rates on a loan and a deposit) for the first type as a whole turns out to be narrower than for the second. It often happens that borrowing, for example, dollars will cost more in their country of origin in the US than in the UK. This paradox takes place due to the state currency control in various ways of its implementation. However, even in the absence of it, this phenomenon may take place, which in turn is due to the possibility of establishing foreign exchange controls in the future. In particular, the lending rate may be lower in Eurocurrency banking markets due to lower lending costs, not only as a result of the absence of foreign exchange controls and taxes on such transactions in these markets, but also due to the popularity of most borrowers, which reduces the cost of collecting information. on them and its analysis. Also, a large amount of Euro-currency credit, which is also characterized by standardization, contributes to cost reduction. loan agreements and their implementation by telephone or telex, during which there is no real movement currency, as is the case with domestic and foreign loans, but only the transfer of rights and obligations. A large volume is provided by a syndicate of banks, which is fundamentally different from a local loan, which is usually issued by one bank.
Eurocurrency lending, carried out mainly in dollars, can occur in various currencies. More and more loan agreements therefore include a multi-currency clause that gives the borrower the right to convert the loan into any other specified currency on a specified date. As a result, the borrower is able to more effectively synchronize their foreign currency payments and receipts.
3.3. Eurobonds
The principal feature of the eurocurrency lending mechanism is that investors open short term deposits in banks, which these banks, acting as intermediaries, convert into long-term loans end borrowers. Eurobonds as an alternative to bank lending with eurocurrency financing are issued directly by the final borrower, bypassing intermediaries, mainly in the form of banks. However, banks also participate in the issuance and distribution of Eurobonds. Eurobonds are bonds traded outside the country in whose currency they are denominated. They, like foreign bonds, consist of floating (fixed premium over LIBOR) and fixed rate bonds and equity-derived bonds. Unlike the local and foreign markets, the Eurobond market almost completely lacks state regulation and taxation (which is the reason for its existence), but instead it is regulated by the International Securities Markets Association (ISMA), created by the participants in this market. This organization brings together approximately 1,000 financial institutions from various countries. ISMA is a self-regulating organization, its decisions are not of a directive nature, but are advisory for market participants. However, all members of the Association prefer to comply with advisory rules that streamline the market, ensure its liquidity and make it attractive for both issuers and investors. Eurobonds are issued to the bearer, which preserves the anonymity of the investor and allows him to avoid taxation. In addition, Eurobonds are simultaneously placed on the markets of several countries, as a result of which they are not subject to national regulation systems, including in terms of borrowing volumes. Historically, the volume of lending in the Eurobond market has been significantly less than in the Eurocurrency market. But over the past 15 years, its size has increased dramatically and now exceeds the volumes on the Eurocurrency banking market. Currently, the volume of Eurobond loans in circulation is approximately 3.5 trillion. USD. The main reason for the growth of this market is the emergence of swap operations (from the English swap-exchange) - financial transaction on the exchange of streams of payments for a certain time. It accounts for 70% of all Eurobonds. The exchange takes place both in payments at a fixed interest rate for payments at a floating one, and flows in one currency for flows in another. As a result, the borrower penetrates the market of different currencies. For example, if his bond is in high demand, provided that it is denominated in one currency, and he needs another currency, then the borrower issues his bond in the first currency at more favorable conditions and exchanges the received funds with the help of a swap for a second currency. Preference for a particular currency depends on several factors, such as the level of interest rates for a particular currency. But in general, about 75% of Eurobonds are denominated in dollars.
As a rule, Eurobonds older than seven years are secured by a redemption fund and a sinking fund. The first is used for redemption if the market price is set below the issue price. The sinking fund is spent on the redemption of a fixed part of Eurobonds after a certain number of years have passed since the date of issue. These funds maintain the market price of the bonds and reduce the risk that the borrower will have to repay the entire amount of the loan at once.
Borrowers in this market for the most part have well-known names and an impeccable credit history, which gives them the opportunity not to participate in ratings and not spend money on paying for services. rating agencies. This does not apply to newcomers, from whom the investor requires participation in the rating for evaluation credit risk. For issuers-subjects Russian Federation it is necessary to obtain an international credit rating - according to the decree of the President - from two agencies. Leading international agencies ratings for Russian Eurobond issuers are Standard & Poor's, Moody's and IBCA. The place in the rating is determined by the ability of the issuer to generate cash flows in the currency in which the debt is denominated. The process of issuing Eurobonds is quite laborious and includes a number of procedures, such as conducting a preliminary analysis of the issuer, compiling rating books and obtaining an international credit rating, preparing an information memorandum for investors, compiling legal documentation for the issue, conducting presentations for investors in Russia and abroad, and providing placement issued securities by a syndicate of underwriters, etc.
The issue of Eurobonds can be organized by an international syndicate of brokers or underwriters in the form of programs that allow the issue to be made in several tranches, which makes it possible to more flexibly attract resources from international markets. The reason for syndication lies in the fact that, unlike foreign bonds, Eurobonds are sold simultaneously in several countries. An extreme case, when even more than a hundred banks are involved in the issuance of minimum size issue of 25 million dollars. In this case, both the investor and the borrower solve the problem of reducing the risk from the undesirable influence of uncertainty in the behavior of the partner through diversification. An alternative option for the formation of a bank syndicate for underwriting is expressed in the issuance of Eurobonds on a private basis due to the simplicity, speed and anonymity inherent in this mechanism. The main volume of transactions with Eurobonds is carried out on the OTC market (OTC - over the counter), although to facilitate the access of investors, Eurobonds are registered on one of the world's stock exchanges. All Russian Eurobonds are issued in non-documentary form and are listed on the Luxembourg Stock Exchange.
Settlements for transactions with Russian Eurobonds are carried out through special settlement banks, Euroclear systems, Brussels, and Clearstreem Banking, Luxembourg (old name - Cedel). After the financial crisis of 1998, these clearing systems suspended the opening of accounts for Russian investors. However, it is possible to open escrow accounts in banks that have retained such accounts, for example, in the depository of Alfa-Bank. The main trading centers for Russian Eurobonds traditionally remain London, New York and Moscow. The bulk of trading takes place on interbank market; large volumes are traded through brokers serving professional market participants. Many Russian bonds are listed on European exchanges, but the exchange turnover of Eurobonds is very small. However, according to the Emerging markets traders Association, which brings together leading traders in emerging markets (mainly foreign banks) and coordinates the actions of its participants, this market is experiencing a steady growth in turnover. It is obvious that, as in the case of Euro-credits, Russian borrowers, such as Rosneft, Sibneft, Gazprom, Lukoil and many other first-class Russian companies, issue Eurobonds in many ways in order to create an image of a good borrower, which will give they are able to borrow substantially more money on the international capital market at lower costs. Recently, the Russian Eurobond market has been experiencing a fairly strong price growth due to the favorable situation in the public sector: a positive balance of current accounts, an increase in exports and an increase in foreign exchange earnings allowed the Central Bank of Russia to accumulate gold reserves at record pace. Government statements about Russia's readiness to pay its own external debt in full, as well as his efforts in the field of settling the debts of the Russian Federation to international financial organizations, increase the optimism of investors. Obviously, the probability of Russia's default, at least in the next 1-1.5 years, is equal to zero. In addition, Russia has always been very scrupulous about servicing its Eurobonds, paying punctually coupon income and the amount of the principal debt even in the crisis years of 1991 (Eurobonds of Vnesheconombank of the USSR) and 1998-1999. The redemption on November 27, 2001 of the first issue of Eurobonds in the amount of more than 1 billion dollars was another reason for the growth of their prices. There are still good yields on the Russian Eurobond market, its volume is quite large, and most securities are very liquid. In the context of the continued fall in rates on major world currencies and the US dollar in the first place (the refinancing rate in the US is 2% per annum and its further reduction is still possible), investments in Russian Eurobonds with 10-12% coupons, of course, represent a serious interest for many international investors. At the same time, despite the positive fundamentals, technical corrections in the prices of Russian bonds in the present and future are very likely. The reasons for such falls may be a decrease in world prices for raw materials, and above all for oil, Russia's dependence on the state of the economies of the United States, Japan and Europe, as well as the situation in other emerging markets such as Argentina, Brazil, Turkey, etc.
4.Decision-making process for international long-term financing
In general, the process of making a decision by the subject on the choice of a specific long-term international instrument includes not only the analysis and forecasting of trends in the global capital markets, but also the study of all elements of the domestic environment. For example, the political environment within the country of the subject of financing sometimes has a decisive influence on the choice of a specific method of attracting international capital. The Russian borrower in the case of a Eurocurrency loan issued on a syndicated basis is not limited in terms of the loan amount. While at regular loan there is a standard Central Bank, and for a bonded loan there is a requirement to ensure liquidity from 100 million dollars. The optimal size of syndicated loans is from 20 to 300 million dollars. The term of the organization is from 8 to 13 weeks, and there are no taxation features, unlike a bonded loan. Disclosure requirements are determined by the borrower, in negotiation with the financial adviser, who is himself the lender, and decides what information requirements can lead to the success of the loan placement.
In addition to the international and domestic environment and the internal environment of the entity itself, in order to determine the optimal instrument for international long-term financing, the entity needs to evaluate and weigh all the advantages and disadvantages inherent in each of these instruments. For example, unlike a Eurocurrency loan, which has a floating interest rate, Eurobonds are also issued with a fixed interest rate, which reduces the risks of the borrower, since known payments on these bonds are covered by known, planned inflows in the same currency. Despite the fact that the period of borrowing in the market for Eurocurrency bank loans is constantly increasing, the duration of Eurobonds is still longer, which reduces the cost of Eurobond financing of long-term projects. On the other hand, the average size lending to one borrower in the Eurocurrency banking market is higher than in the Eurobond market (although the total volume of the latter currently exceeds the size of the former market). Moreover, the costs of organizing a Eurocurrency loan are significantly lower than those in Eurobond financing (approximately 0.5% of the cost of the entire loan versus 2.25% of the face value of the bond). Another disadvantage of Eurobonds lies in their inflexibility, as they are repaid by a certain amount according to a fixed schedule. Negotiations with creditors are practically impossible due to their large number. In the case of a Eurocurrency loan, it is possible early repayment at a convenient time for the borrower with the payment of a small penalty in the amount of approximately 0.5% per annum of the unused amount, and payments can be made immediately or in installments. Also, euro-currency loans with a currency clause allow the borrower to convert the loan into another currency on a certain date, while such a transaction with eurobonds will be accompanied by high costs of re-issuing and placing bonds in another currency. Although it would be cheaper to sell a forward contract for the borrower to supply the unwanted currency in which the Eurobond is denominated in exchange for the preferred currency on the due date of the debt. The currency conversion operation on a Eurobond can also be carried out through currency swaps, which enable the borrower to convert the funds attracted from the bond into another currency, followed by a reverse operation at the time of debt repayment. Also, the advantage of Eurocurrency lending is the quick procedure for obtaining a loan, often in 2-3 weeks for first-class borrowers. But recently, the difference in the terms for processing the two types of loans is not as noticeable as before.
After analyzing the international situation, the domestic environment, the internal environment of the financed entity and the advantages and disadvantages of a particular type of international long-term financing, it is necessary to consider in detail all the elements received for their compatibility in accordance with the developed financing strategy. Next, the tool that best satisfies all these elements of analysis is selected. capital financing. In general, the process of making this financial decision is quite laborious and sensitive to the environment of the subject. For Russian subjects barriers to entry into international financial markets remain high. This is primarily due to the transitive nature of the Russian economy, characterized in this perspective by high uncertainty and different business practices from the West. It can be concluded that only large, reliable companies have the prerogative to use the advantages of international capital markets among Russian borrowers. As a rule, these are monopolists mainly in the fuel and energy complex and telecommunications, whose assets are capable of generating significant cash flows on a stable basis.
