UFS Investment Company - NOMOS-BANK - Opportunity to Gain Outperforming Yield with Minimal Risks, Jul 9, 2013.
NOMOS-BANK (-/Ba3/BB) is one of the most reliable borrowers in the banking sector with decent credit metrics, including high capital adequacy ratio, high-quality assets and adequate income. The company has public debt in ruble bonds and Eurobonds. Series 11 is the most interesting option in the ruble debt market with the yield of 9.05% p. a., which has a spread of 280 b. p. to OFZ. Due to a large curve slope the yield on the issue will substantially decline as maturity date is nearing.
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The subordinated NMOSRM-19 is the most interesting issue among Eurobonds. The yield spread between this issue and a longer-term bond of Promsvyazbank (-/Ba2/BB-) PROMBK-19 has been in place only since June 26. Till then PROMBK-19 was trading 20-30 b. p. higher. In the medium term we expect this discrepancy to disappear as NMOSRM-19 yield will fall 25-35 b. p., while price will increase 1.1-1.6% to 105.6%-106.1%.
Last Friday NOMOS-BANK released IFRS statements for Q1 2013. Assets increased 3.3% to 929 bln rubles.
Gross loan portfolio grew 8.0% to 659 bln rubles. Growth was about equal in all segments of lending.
Loan portfolio quality worsened insignificantly. During the quarter NPL 90+ increased from 1.95% to 2.05%, while provisions/NPL 90+ decreased from 1.83N to 1.68N. Nonetheless, this ratio is quite conservative.
The share of liquid assets declined from 7.2% to 5.4%. Liquidity was partly allocated for the increase of securities portfolio (Eurobonds issued by banks).
A shift in assets towards higher risk caused capital adequacy ratio to fall from 16.30% to 15.96%, despite capital growth ensured capitalization of Q1 net income.
The bank reported slight growth of net interest margin from 4.28% to 4.29%. Nevertheless, return on equity (ROE) declined from 18.36% to 17.78% as a result of contraction in interest income. All in all, the bank retains high credit quality and good income as compared to TOP-15 banks. The released statements had no considerable effect on the outstanding bonds.
In the ruble debt market the bank has no issues with the duration of more than a year. BO-5 worth 7 bln rubles offered on July 1 has one of the largest durations among the issuer's ruble bonds. The yield curve has a steep slope, which increases attractiveness of the issuer's longest-term bonds. Notably, BO-5 was placed at the upper end of the initial range, 9.2% p. a. The current duration is 0.97 years. After the first two trading days the yield fell 25 b. p. Meanwhile, series 11 is trading with the same duration but 10 b. p. higher (9.05% p. a.). The issue is appealing due to high credit quality of the issuer, while the spread to OFZ is 280 b. p. we forecast the yield may sink considerably during several months, as maturity date is nearing, on a steep curve slope.
NOMOS-BANK (-/Ba3/BB) four Eurobonds, two of them are senior bonds, NMOSRM-13 worth $400 mln, and NMOSRM-18 worth $500 mln; two issues are subordinated: NMOSRM-13 in the amount of $400 mln and NMOSRM-19 in the amount of $500 mln. The closest counterparts in the market are Credit Bank of Moscow (B+/B1/BB-) and Promsvyazbank (-/Ba2/BB-).
We find NMOSRM-19 the bank's most appealing Eurobond (4.4-year duration, the yield of 9.0% p. a., Z-spread of 727 b. p.). Its neighbours on the yield curve are the subordinated issues of CBM CBRKMO-18 (4.31-year duration, the yield of 9.38% p. a., Z-spread of 761 b. p.) and Promsvyazbank, PROMK-19 (4.78-year duration, the yield of 8.94% p. a., Z-spread 708 b. p.). The yield spread between two issues has been in place only since June 26. Till then PROMBK-19 was trading with a spread of 20-30 b. p. to NMOSRM -19. In the medium term we expect this discrepancy to disappear as NMOSRM-19 yield will fall 25-35 b. p., while price will increase 1.1-1.6% to 105.6%-106.1%.
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|Publication:||Russian Banks and Brokers Reports|
|Date:||Jul 10, 2013|
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