Russia currently lacks a well-established market for convertible bonds, which are debt securities that can be exchanged for issuer shares. The Bank of Russia has reviewed the regulations surrounding these instruments and concluded that updates are necessary to meet the needs of both issuers and investors.
The initial amendments to the rules governing convertible bond issuance were introduced between 2018 and 2019. Despite this, there have been few issues of these securities. Issuers have struggled with flexibility in setting conversion parameters, while investors have shown reluctance due to the complexity of the product, which demands a detailed risk-benefit analysis. Additionally, macroeconomic uncertainty and the withdrawal of large venture funds from the Russian market have negatively impacted the situation.
To enhance the appeal of convertible bonds, the Bank of Russia suggests creating conditions for their use at the pre-IPO stage. This would allow issuers to secure financing on more favorable terms before going public. Furthermore, consideration is being given to transitioning from a fixed conversion ratio to a variable one. These proposed changes aim to help companies better tailor this financial instrument to their specific needs and market conditions.
