The start of trading in government securities; European Union accession; the creation of the first pension funds; and the decline in interest rates are factors that will see to the development of the corporate bonds market in the near future.
"I believe 2004 is a milestone for the development of the corporate bonds market," said Stere Farmache, general manager of the Bucharest Stock Exchange during the "Corporate Bonds: How-To" seminar organised by Ziarul Financiar together with Raiffeisen Bank and Romania Business Club yesterday. He believes that once interest rates go down, companies will resort to funding by corporate bonds more often, as this is a more modern, flexible method of supplementing the funding obtained from the banking system. There are three corporate bonds issues, namely those of Raiffeisen Bank, BRD-SocGen and Impact Bucharest, currently listed on the Bucharest Stock Exchange.
Raiffeisen Bank's vice-president James Stewart feels the establishment of pension funds will have a strong impact on the demand for bonds on the market, given that the main investors in bonds worldwide are precisely the insurance companies and pension funds.
The high ROL interest rate compared with inflation, together with the current exchange rate trends are likely to draw foreign investors towards bonds, as interest rates on the international markets are close to all time lows. Stewart says that the advantages of raising cash through bonds for a credit institution include the much lower costs, compared with raising the same amounts through banking deposits. Secondly, they provide certainty of longer-term funding, considering that bonds unlike deposits are not repayable before the due date. Raiffeisen's official added that bond issuers enjoy better public recognition and visibility both on the capital market and in the financial media.
One of the problems the bonds market is currently facing is the lack of liquidity on the secondary market. This might be resolved once issues of government securities are listed, which will boost both the supply and demand of fixed-yield instruments - a category that also includes corporate bonds.
vlad.nicolaescu@zf.ro
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