Under the arrangement, investors can buy certificates issued through AA+ rated BNP Paribas’s structured equity issuance programme linked to a wide range of Russia-specific investment themes.
Tim Bevan, vice-president, equity finance, at RenCap in London, says that the strong rating of the BNP Paribas programme means that both firms will be able to tap into a wider universe of investors beyond the normal emerging market specialists. "The target audience we are looking at includes private banking, high-net-worth individuals and family offices."
He adds that while many of those investors have been buying equities from the Bric (Brazil, Russia, India, China) countries over the past few years, the increasing divergence in performance between the Bric markets – both the Indian and Chinese markets are both sharply down this year, for example – means that there is increasing demand for specific single-country exposure.
Bevan adds that investors are also looking for a convenient way of playing certain investment themes in Russia through tailor-made instruments, which offer a combination of enhanced liquidity supported by comprehensive research. "Investors benefit from our strong research and closeness to the Russian market, combined with the structuring and distribution capabilities of BNP Paribas," he says.
The first issuance off the facility comprised $65 million-worth of paper linked to the break-up of one-time power monopoly UES. In effect, the certificates give investors exposure to the 23 companies that were formerly part of UES, including four unlisted firms. The second issue is due to be a certificate offering exposure to the agribusiness sector, which is benefiting from the global supply/demand imbalance for many basic foodstuffs and increasing focus from government as a strategic industry.
Although such banks as Deutsche Bank, Merrill Lynch and UBS offer certificates linked to investment themes such as infrastructure development, Bevan says that to date those certificates have tended to group together blue-chip stocks that are often only loosely correlated to the investment themes they purport to represent.
"It’s very unusual to see anything outside the most liquid internationally traded Russian depositary receipts in those baskets – we are able to go much further down the list of traded equities and offer a richer, more diverse universe of companies," Bevan says.
Issuance under the programme is to range between $30 million and $150 million per product, with a new certificate likely to be issued on a monthly basis, market conditions permitting. Bevan says that in tandem with BNP Paribas, RenCap will be able to provide investors with exposure to all the major investment themes in Russia. "Fundamentally, Russia looks incredibly cheap right now, and after the summer lull we expect to see a strong relative market performance in September/October."