Aare Tammemäe: Estonian bond market has all prerequisites for the restart (Ärileht)

08 May 2014

Estonian bond market has gained strength after the economic crisis, but Latvian and Lithuanian bond markets are still one step ahead from Estonian when it comes to the activity of the market, as it appears in Redgate Capital’s overview of Estonian and Baltic bond market.

According to the Board Member of Redgate Capital Aare Tammemäe, then unlike our southern neighbors, there is no active trading market in Estonia, bonds are being kept until redemption and they do not move through the stock exchange but from hand-to-hand. „Mainly corporate bonds with higher credit risk are being issued in Estonia, or bonds for various projects. Unlike Latvia and Estonia, we do not have government bonds, because local authorities can get money more favorably from the banks and the state does not involve money from the bond market,” added Tammemäe.

However, the bond market is considerably more active than it was in the previous year. In 2013, 13 companies and one local government issued bonds that amounted 95 million euros. The biggest emission was from Sharp Investment in total volume of 39 million euros.

The only local government that issued bonds, was the city of Tartu with 19.7 million euros. The bond that had the largest amount of investors and the longest duration (8 years) was LHV Group’s bond. In addition, many financial companies that offer consumer credit, and companies that are connected to the real estate development or manufacturing, wanted to engage growth capital through the bonds. In the first quarter of 2014, there have been arranged four bond emissions in the total amount of 3,3 million euros. There are no Estonian issuers in the list of NASDAQ OMX Baltic bonds.

According to Tammemäe, there is a small amount of Estonian institutional investors and bonds are mainly purchased by Estonian, but also Latvian and Lithuanian, wealthy private investors. “There is a new group of private investors who are not spoiled by the high returns, and who earn higher salaries, take out dividends and look for alternative ways of placing the money rather than bank deposits and real estate investments,” explained Tammemäe.

Tammemäe said that the situation in Estonia is favorable for further development of the bond market in Estonia, because the interest rates are low. “Bond is an appropriate financial instrument for both the person with an average salary and entrepreneur, but today there are no suitable bonds in Estonian market for them, for example state or state business’ bonds with low risk. These bonds would also be good investments for pension funds. We can see something similar coming to Estonian market in the nearest future, likewise it happened in Latvia and Lithuania.” described Tammemäe the potential of the market.

Latvian and Lithuanian bond markets are much more active than Estonian. „The market of state bonds has been successfully operating for decades, and for this reason our southern neighbors are one step ahead of us in developing the capital market,“ commented Andrei Zaborski, the project manager of bonds in Redgate Capital.

This year, the Latvian state has organised two international emissions worth over one billion euros and the Lithuanian state one with the volume of 500 million euros. In all cases, the bonds were listed in the stock exchange of Luxembourg.

One of the few Estonian international bond market issuers, Estonian Energy (Eesti Energia), increased its loan volumes in the beginning of the year. 100 million more euros were added to already existing emission, which increased the total issue volume to the 400 million euros.

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