MARKET SIGNALS

INVESTMENT IDEAS

Today we will look at two corporate debt securities as investment ideas for this week: U.S. Steel and VTB

IDEA #1: U.S. Steel

In the segment of high-yield securities, let us pay attention to one of the Eurobonds of the American steel company U.S. Steel It should be noted that the issuer (the second largest steel company in the United States) is going through difficult times: amid falling steel prices, its revenue indicators are falling in 2019, and the fight against costs is becoming more acute. So, as of November 1, 2019, futures for the U.S. hot rolled steel index fell by 40% y / y – it is not surprising that U.S. Steel has lost a third of its exchange capitalization since the beginning of the year.

Credit agencies downgrade their issuer ratings – for example, in September 2019, Moody’s downgraded U.S. senior unsecured debt rating. Steel to B3. The agency expects that as a result of financing strategic investments aimed at increasing productivity, the company’s Debt / EBITDA metric will increase from the current 2.4x to 5x. However, Moody’s does not expect further fundamental deterioration in the industry and therefore holds a “stable” outlook on the issuer.

U.S. Senior Unsecured Issue Steel in the amount of $ 750 million was placed in August 2017. The issue market is global. Three call options are provided for the issue, the yield of the closest of them (08/15/2020 at a price of 103.438%) is 22.8%. The face value and the minimum lot on paper are $ 1,000. Eurobonds are serviced by NSD. Note that the issue looks very interesting against the background of global securities of comparable credit quality.

IDEA #2: VTB

Against the background of VTB rewriting historical lows on profitability, we decided to pay attention to another subordinated issue of this issuer – the Eurobonds denominated in Swiss francs maturing in October 2024. At the end of last month, the issuer did not exercise its right to withdraw the paper as part of a call -option, resulting in a revision of the coupon level on it from 5.0% to 4.0725% per annum. Note that until the paper is redeemed, options for revising the coupon level or early recall are no longer provided.

The issue became one of the leaders in price growth in October in the segment of Russian Eurobonds, having risen in price by two figures. However, its profitability still looks very interesting in the segment of international subordinates nominated in Swiss francs.

Alexey Shternshis

Joint Managing Director

Сapital Pi