A feature of the modern developed economyis the availability of a large number of financial instruments. And within the framework of this article, we will consider what subordinated bonds are.
Often subordinated bonds are also called"Subordinates" or "younger". It is clear that this situation creates additional risks for their holders. And they must be compensated by increased profitability. By their nature, these bonds are a rather risky instrument. Therefore, their issuer is below the requirements. As a result, it is easier to ensure the issue of securities. High yield and at the same time a significant turn in the case of payments makes their holders quasi-shareholders.
Let's consider a small example.Suppose subordinated bonds of a savings bank seem to be something fantastic. But they exist. And the use of this tool to support a company in which they own a large part of the power and even their directors are represented - is a common practice. Although, in pursuit of profitability, investors can acquire subordinated bonds of banks that are in a difficult situation.
Let's consider what issubordinated loan on the example of the relationship between parent and subsidiary companies. So, the second issues bonds, which in the future completely redeem the first. This can be done for additional financing to increase liquidity, or when a subsidiary structure is not of interest to investors.
Otherwise, you can do with bonds,which are cheaper. But their main purpose is to serve as lifebuoys for the organization's liquidity in cases where no other instrument can ensure the full implementation of this role.
In order to receive it and organize itissue of subordinated bonds. It is very convenient for organizations that are growing rapidly. Usually they are issued for a period of five years. Although a specific period may not be indicated. The features of indefinite subordinated bonds are that they pay a certain dividend. While the principal amount is not repaid. But, alas, these advantages of the instrument are neighbors with limitations. So, in case of violation of existing standards, write-offs are to be written off. In other words, the owners are not shining to be at the end of the line for assets, and they generally lose the chance to get something.
Now all these bonds are serviced inaccording to the Basel III standard. According to him, these securities are considered as second-tier capital. By the way, it should be noted a particularly important point: in the case when the deposit insurance agency starts the procedure for preventing bankruptcy and bonds fall in price, they turn into ordinary shares. Legislatively established that this threshold is 2% of the cost. Therefore, this is an extreme measure.
In total, three documents were issued.Each of them to some extent normalizes the level of reserve capital, taking into account the credit risks. The Russian Federation has ratified all three documents. Although, with certain amendments. And for this there are a number of reasons:
But if there are problems, then why are they being introduced? There are several reasons for this:
Although a certain wariness is stillis retained. So, subordinated bonds once traded at the level of 20% of the face value. Of course, there was a strong uncertainty about the future. But those who purchased bonds at the lowest price, will be able to claim a multiple win in 2019. As a result, those investors who gave the slack and succumbed to panic - were the losers. Those who had confidential information or were just an optimist, now can only smug their hands smugly.
Thus, the Moscow Stock Exchange recently started usingsplitting lots, so that you can become a bond owner with such a "negligible" amount as a thousand US dollars. Who uses these tools and why? The goals of affiliated persons are already clear from their name. Investment funds want to ensure a high profitability for themselves. So, bonds of ultra-reliable issuers, of which Sberbank is an example, provide a good profit. And with this - it will be a conservative investment of money.
And again - this tool allowsto expect a high level of profitability. But this is possible only due to significant risks. Therefore, it is desirable to choose reliable objects. It should be remembered that not only activities are carried out here, when it is possible to lose part of the invested funds, but also all investments. After all, even in the event of bankruptcy, ordinary shareholders often do not get anything. And there is nothing to say about subordinated bonds. Therefore, it is necessary to seriously approach the choice of the issuer. The same savings bank will ensure that not very high, but reliable profit for a long time.
Use this tool only whenavailability of qualitative full-fledged information about the subject's condition and broad knowledge in the field of investment. Also do not advise to start working with large amounts. The rule "you can go quietly, you'll be better" can help here. It is necessary to gradually gain experience, understand the affairs of the company using only public information - and then the probability of failure will be minimized. Of course, it's impossible to completely protect yourself, and there will always be a certain risk. But it is fully compensated by profitability. If you realistically assess the existing risks.
Although, as can be said about any financiala tool that is used for enrichment. After all, working with money in our time is extremely risky occupation, requiring a wide range of knowledge, the ability to effectively use and use them.
