MARKET SIGNALS

INVESTMENT IDEAS

Today we will look at one debt security as investment ideas for this week: Tenneco and RSHB

IDEA #1: Tenneco

In the segment of foreign securities, we note the issue that we already wrote about two months ago – Tenneco senior Eurobonds maturing in 2026. Since then, the paper has risen in price by more than 10 figures. Nevertheless, its yield to maturity (6.8%) still looks interesting both in terms of absolute values ​​and in the context of international securities of a similar rating.

The issuer is one of the world’s leading manufacturers of auto parts. Specializes in exhaust control and control products. It supplies products both for the needs of major automotive concerns, and sells it independently under its own brands. At Tenneco Inc. 81 thousand people are employed. Headquartered in Lake Forest (Illinois, USA). The company’s shares are traded on the NYSE with a current market capitalization of $ 1.1 billion.

Despite the rather stable dynamics of financial results, investors were disappointed with the results of the issuer’s M&A activity in recent years, which led to a significant increase in its debt burden. This was reflected in the decline in the company’s stock exchange capitalization and the deterioration of its credit ratings. So, the value of the metric “Net debt / EBITDA” is 3.2x, which seems to be increased. However, in recent months, the position of the company has improved slightly, which was reflected in the value of its debt obligations. So, the probability of the issuer’s default over 5 years according to the methodology of the Bloomberg agency, which reached 14% in August this year, has now fallen to 8%.

The senior unsecured issue with maturity on July 15, 2026 in the amount of $ 500 million was placed in June 2016. The issue market is global. Five call options are provided for on paper, the yield to the nearest of them (July 15, 2021 at a price of 102.5%) is 13.3%. Options to review the coupon level are not provided. The minimum paper lot is $ 2 thousand. Eurobonds are serviced by NSD

IDEA #2: RSHB

Against the backdrop of the placement by the Agricultural Bank of Russia (RSHB) of “eternal” bonds in euros, let’s pay attention to its only Eurobonds maturing in 2023. This paper offers a yield of about 5% and looks interesting against other subordinated Eurobonds from domestic issuers.

The Russian Agricultural Bank is a state-owned bank established in 2000 to develop the national credit and financial system of the agricultural sector and rural territories of the Russian Federation. Today, he is a key participant in the state agribusiness development program, and also takes part in the implementation of national projects. In addition, RSHB is a universal commercial bank providing all types of banking services. According to the results of the third quarter of 2019, the bank took 5th place in terms of assets in the Interfax-100 ranking. The RSHB employs 30 thousand people.

The state (100% shareholder of RSHB) is constantly recapitalizing it both to increase the possibilities for lending to the agro-industrial complex and to fulfill the standards of the Central Bank. As of September 30, 2019, the bank’s capital under IFRS reached 173 billion rubles, having increased by 13.9% since the beginning of the year. The growth of this indicator is associated with a contribution in the II quarter. 2019 of the federal budget in the amount of 15 billion rubles, as well as with the capitalization of profits for 9 months of 2019 in the amount of 4.3 billion rubles. By the end of 2019, the bank expects to additionally attract another 14.6 billion rubles from the budget, including 10 billion rubles, to be transferred from the 2020 budget. The rating agencies Moody’s, Fitch and ACRA keep a “stable” forecast for changes in the ratings of the RSHB.

A subordinated issue of RSHB with a maturity of October 16, 2023 in the amount of $ 500 million was placed in October 2013. The issue market is Eurodollar. There are no options for early recall or revision of the coupon level before the end of the paper circulation term. Although the issuer’s senior debt has rather high ratings from the Big Three agencies (Ba1 from Moody’s, BBB from Fitch), the suborda (including this issue) remain unrated.

Note that the conditions of this issue stipulate the possibility of its cancellation if the capital adequacy ratio of the 1st level of the bank falls below 2% (as of 01.10.2019 it amounted to 11%).

Since the beginning of the year, the yield on the issue has decreased by 340 bp. n., which was caused mainly by the narrowing of the premium to the UST. Note that the spread in the yield of the issue to Sberbank’s subordinated Eurobonds maturing in 2023 tends to expand slightly in recent times.