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For the first time, the National Bank of Serbia bought the bonds of a company, Telekom Srbija, and thus the announcement of President Aleksandar Vučić in March came true that corporate bonds would be a way to “strengthen the pillars of our EPS economy, Telekom, Air Serbia “.
Photo: Zoran SpahićLast Friday, Telekom Srbija raised 23.5 billion dinars by selling five-year dinar bonds to national banks, and the central bank immediately bought half of the issue on the same day, about 100 million euros from those banks, based on a decision May allow corporate bonds of national companies with at least the creditworthiness of B from the Mercantile Registries Agency to buy from primary customers, banks or accept as collateral for liquidity loans to banks.
One of the arguments of the National Bank was that in this way, which is what other countries apply, it is trying to develop the bond market, which practically does not exist in our country.
However, Telecom also did not issue bonds through a public offering on the stock exchange. Branislav Jorgić, owner of Jorgić broker, points out that since the securities issue was closed and intended for known buyers, it will have no effect on the capital market.
“If the show were public, anyone could buy the papers and if they were listed on the Belgrade Stock Exchange, it would have a positive impact on the development of the stock market.” This is not a common measure for normal times, but considering the pandemic and since it is part of the package of measures to support the economy, it is something that other countries have also done ”, estimates Jorgić.
On the monetary side, Dejan Soskic, professor at the Belgrade Faculty of Economics and former NBS governor, explains that such measures are implemented in developed markets where there is a liquid bond market, when the instruments of conventional monetary policy are exhausted.
“We do not have a liquid market for corporate bonds in which the price of these bonds is set. The face value is one and the real price is achieved in the active trading of securities. In this way, there is no way of knowing whether the NBS bought the securities at a fair price or not. It may happen that the bond loses its value and is on the balance sheets of the central bank. In this way, deferred losses can be generated by the central bank that are not visible until the maturity of the security. “Decisions made by the NBS regarding corporate bonds were made due to incompetence or bad intentions,” says Soskic.
An additional problem with accepting illiquid long-term corporate bonds is that it encourages banks to buy these securities, which supports their price and may have the effect of lowering their interest rates. As Šoškić explains, this represents practically a completely non-transparent state subsidy to certain private or state-owned companies.
It also notes that the central bank is not tasked with creating a bond market, and that this does not exist in the NBS Law. Soskic explains that the US Fed bought corporate bonds, but only in the third phase of quantitative easing, while we are not in the first.
“We don’t need quantitative help. Bonds that are not traded in the market are not bought. The state can subsidize a company. It can give you a non-repayable loan, but it does not do it through the central bank. It is a financing with the primary issue of the company based on the discretionary decisions of the central bank ”, he warns, adding that the acceptance of the solvency determined by the APR is also debatable.
“It is an error if the central bank relies on the solvency issued by the Commercial Records Agency to invest in securities, because it does not have the status of a rating agency. According to the Law by virtue of which it was established, it is in charge to keep the records determined by law, not to grant solvency. It is worth wondering if the Mercantile Registries Agency has ever confirmed the knowledge and experience to evaluate the solvency of the company in which the NBS must trust, and if the Agency de Registros Mercantiles will assume some responsibility for the possible granting of incorrect credit ratings.? In the end, APR is a state agency in which the state has a direct influence, “says Soskic.
For two days, the NBS did not answer Danas’ questions about this purchase.
Therefore, we do not know at what price the NBS bought them from the banks or why they bought them practically immediately after issuance. By the way, on September 9 and 10, another state company and its two subsidiaries issued a total of 200 million euros in bonds. These are Jugoimport SDPR with 130 million euros and the company subsidiaries Borbeni složeni sistemi (45 million euros) and PMC inženjering (24 million euros).
It is also not known whether the NBS has bought or intends to buy part of these securities from the banks, the main buyers.
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