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Concern Pokrovsky. Why his bonds might be interesting

On February 19, it is planned to place the debut issue of bonds of the agricultural holding Concern Pokrovsky (1 billion rubles, 9.75 / 10.11%, 3 years, additional information here: https://smart-lab.ru/company/ivolga_capital/blog/673978 .php)

This issue is the debut of a large holding. The situation is when a large-scale and successful business has been created, but its outer shell is far from the standards of the public capital market. So, Pokrovsky today does not have a full-fledged consolidation and credit rating. However, entering the bond market is a strategic step designed to diversify the Concern’s liabilities base. And actions to consolidate the group of companies and implement reporting in accordance with IFRS are already underway (consolidation is to take place in 2022, a rating is planned for 2023).

As a reflection of the seriousness of the Holding’s intentions, the debut issue has excess collateral (in particular, the bond group, which includes the Pobeda Plemzavod as an issuer and 4 other agricultural enterprises as guarantors, suggests a covenant to reduce the group’s retained earnings below 6 billion rubles).

Concern Pokrovsky.  Why his bonds might be interesting
The size of the Concern itself (the main financial indicators of the Holding and the bond group are given in the presentation of the issue: https://t.me/probonds/4998) is reflected in the rating of the largest Russian landowners published by Forbes (https://www.forbes.ru / milliardery-photogallery / 378069-hozyaeva-zemli-russkoy-20-samyh-dorogih-zemlevladeniy-rossii-reyting? photo = 4).

Concern Pokrovsky.  Why his bonds might be interesting
Concern Pokrovsky.  Why his bonds might be interesting
However, the main question is probably the question of the coupon rate. For a new issue, it is not a generous 9.75% (effective yield 10.11%). What is the explanation. First, according to the information available to us from the Holding, the range of loan rates at which the bond group companies borrowed money in 2019-20 amounted to 2.7-10.6%. And the Holding is not ready to enter the bond market with a rate higher than 10%. Secondly, a limited number of issuers from the agro-industrial complex or the food industry are represented on the Russian debt market. And, judging by the map of the bond market, Pokrovsky with a yield of 10.11% gives a premium to peers up to 3% per annum (adjusted for the lack of a rating – probably up to 1.5-2%). An upside on the results of the placement is likely, on formal grounds. The rate of collection of applications for participation in the placement partly confirms the assumption: in less than a week, the book of preliminary orders is almost 70% full, while exactly 2 weeks remain until the placement itself.

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