Municipal infrastructure bonds. Publication analytics. As a conclusion

One of the main elements that forms the basis of successful investing is the selection of quality assets for investing the investor's money. Such high-quality assets usually include not only well-known and widely used types of investments such as real estate, precious metals, but also securities, the issuers of which are directly or indirectly government authorities.

In particular, not only government or municipal bonds are of some interest, but also a whole range of special investment instruments, such as infrastructure bonds and where money can be invested. This type of investment instrument first appeared in developed countries, and primarily in America.

This mode of debt financing is also used in infrastructure projects in India, South Korea, Chile, Australia, Poland, Kazakhstan.

This article will talk about what infrastructure bonds are, what are the features of using them in investment practice, as well as what instruments of this class are available in Russia, and whether it is worth investing in them or investing capital.

Infrastructure bonds (IOs) - a bait used by the state or a real investment instrument?

In a general definition, an investment bond is understood as a bond issued by a specialized government organization or enterprise for the purpose of raising funds for infrastructure projects - the construction of roads, utility networks, transport and communication lines. At the same time, it is prohibited to spend raised funds for purposes other than financing infrastructure projects.

Obligations on such securities will be secured not only by the pledge of the issuing company’s property, but also by state or municipal guarantees and a bank guarantee from Vnesheconombank (a state bank specializing in financing various government projects, both in Russia and abroad).

Such types securities Bonds are usually divided into two large groups:

• general obligation bonds, or treasury bonds, which are not supported by any specific source of income (general obligation bonds);
• bonds issued for a project, secured by a specific source of income (revenue bonds), or investment bonds

From the point of view of the economic component and their purpose, such papers are designed to perform the following tasks:

• accumulate and redistribute capital in cash between various sectors of the economy; direct capital to projects that are characterized by social and government significance, but at the same time low profitability;
• stimulate production, demand, consumption and thus have a long-term positive effect on the entire economy of the country;
• ensure that investors receive interest income in a predetermined form and return the principal amount;
• provide investors with additional rights and guarantees. For example, priority in receiving interest income, the provision of a bond loan with income from the operation of an infrastructure facility, an increased rate of coupon (interest) income, the ability to use it for credit collateral (repo transactions), etc.

Despite the obvious advantages, both for the issuing state and for investors in Russia, the practice of using AI is still in its very early stages. This, in a sense, is an advantage for those investors who will be the first to invest their capital in them.

If we turn to the very practice of using IR in Russia, then first of all we should focus on the following securities of this class:

1. The undoubted leader in the development of infrastructure projects in Russia is the country's largest transport operator - PJSC Russian Railways.. Public Joint Stock Company "Russian Railways" is one of the world's three leading railway companies.

In this case, the IO is the source of financing that will partially replace the money of the National Welfare Fund (NWF) in the amount of 100 billion rubles, which the Russian government decided to provide in 2015 through VTB to finance a number of projects of the domestic railway monopoly. In addition, Russian Railways received another 30 billion rubles from the placement of infrastructure bonds, plus about 40 billion rubles from pension savings, which are managed by Vnesheconombank.

On May 22, 2013, the MICEX Stock Exchange admitted for trading exchange-traded bonds of Russian Railways series BO-09 - BO-20 for a total amount of 300 billion rubles. The volume of each series is 25 billion rubles. The face value of one security is 1 thousand rubles. The maturity of loans BO-09 - BO-11 - 15 years, BO-12 - BO-14 - 20 years, BO-15 - BO-17 - 25 years, BO-18 - BO-20 - 30 years. Issues are published by open subscription.

The bonds provide for the payment of semi-annual coupons with a yield ranging from 10 to 17% per annum. Currently, there are 10 issues of exchange-traded bonds of Russian Railways in circulation for a total amount of 225 billion rubles and 13 issues of classic bonds for 190 billion rubles.

1. Another interesting issuer of IO is the public-private corporation Avtodor, which is a monopolist operator of road construction throughout the country. This super corporation has at its disposal a federal road fund, which receives money from all road users, both corporate road carriers and motorists.

As can be seen from the price chart of these bonds with a maturity period of 10 years, there is significant demand for them. After all, investor income on these bonds is ensured by liquidity coming from throughout the country, which leaves no doubt where to invest money, especially for those who constantly use these roads.

1. Another, no less interesting example of an investment investment that investors should take a closer look at, and indeed is worth it, are the bonds of PJSC EvrazHolding the largest operator in Russia of sea and river ports and access roads to them.

This allows the holding to export metallurgical products and coal to all world markets, primarily to Europe and China, at minimal costs. Although FIs have undoubted advantages over a similar class of debt securities, investors should also be aware of the risks associated with trading in these investment instruments.

These risks include the following types:

• environmental risks, for example, when the route of laying an oil pipeline from Eastern Siberia to the Pacific coast was changed.
• risks associated with government regulation measures,
• market risks,
• inflation risks, in particular the possible devaluation of the ruble in which the bonds are denominated
• risks of deterioration of conditions for this field of activity,

An example of the risks associated with the implementation of large infrastructure projects and attributed to the risks associated with government regulatory measures is the situation with the Nord Stream project. Thus, new rules for regulating gas infrastructure may lead to restrictions on its operation, which is associated with the actions of the governments of Germany and the Baltic countries.

As a conclusion

It is worth adding that despite the fact that the investment market in Russia is quite weak, nevertheless, as the country’s economy develops, the demand and interest in distributing this investment asset will grow, both from private investors and the state.

The Central Bank is working on changes to the procedure for issuing bonds that can be considered infrastructure. For now, they only concern the rules for preparing documentation. However, market participants believe that a change in the approach to protecting long-term investments is required.

The Central Bank is developing approaches to determining the conditions for issuing bonds under which they can be considered infrastructure securities. For now, we can only talk about making changes to the rules for preparing issue documentation. “After a comprehensive study of this issue, a decision may be made to make appropriate changes to the regulations,” the regulator’s press service reported. The Central Bank does not specify what changes will be made and for what purpose. Moreover, the very term “infrastructure bonds” still does not exist in Russian legislation.

The first attempts to establish the rules of the game in the market for long-term investments in infrastructure were made back in 2009, when Federal service for Financial Markets (FFMS) has prepared a draft law “On the specifics of investing in infrastructure using infrastructure bonds.” According to this document, new debt securities were issued by a specialized project organization in order to attract funds to infrastructure projects. The bill contained a description of certain risk management tools for long-term investments. This law was never adopted, although some of its provisions were included in the law “On the Securities Market”. Among them, for example, is the requirement for the mandatory appointment of representatives of bondholders.

Currently, there are only concession bonds - debt securities issued by a party to a concession agreement in order to provide financing for projects, usually aimed at creating or developing infrastructure (roads, bridges, cultural leisure facilities, etc.). This instrument is often confused with infrastructure bonds, although its scope is much narrower. These papers are issued for specific projects. The problem of distinguishing between these terms has been brewing for a long time, states Svetlana Bik, executive director of the National Association of Concessionaires and Long-Term Investors in Infrastructure (NAKDI). “Infrastructure bonds are a broad concept. This category can include both directly concessionary debt securities and, for example, bonds issued by the municipality for the construction of schools, or Russian Railways bonds,” she explains.

Since such debt securities are issued for the implementation of long-term projects, it is important for them to ensure high-quality risk management. Meanwhile, the requirement for the mandatory appointment of representatives of bondholders (BOR) does not even apply to concession bonds. “We want long-term investors to have similar investment protection mechanisms,” says Ms. Bick. According to her, NAKDI has already sent its proposals to the Central Bank. In addition to introducing into legislation a requirement for the mandatory appointment of a PBO for issuing concessionary debt securities, the association's experts proposed developing mechanisms to guarantee the financier's entry into the boards of directors of project companies. Neither the owners of concession bonds nor any other bondholders currently have such a right. The Securities Market Law allows PVOs to attend meetings of boards of directors, but does not give them voting rights. “In the case of concession agreements, the bond is issued by a specialized company. Most often, it is an LLC that does not have a board of directors at all,” comments Dmitry Krupyshev, managing partner of the legal company Legal Capital Partners. Bondholders have the right to nominate themselves for the post of independent director, but this does not guarantee that the candidate will be elected to the board of directors, he adds.

According to Ms. Bik, such measures are already actively used in world practice (for example, the “Six Rules of Responsible Investment” developed for G20 countries). “Institutional investors, when entering into assets, take risks for a long time. What saves here is the quality of the project’s development at the start, more stringent rules for registering issues and support of their investment throughout the entire life of the project,” she sums up.

Recently, the issue of infrastructure bonds1 has been actively discussed in the Russian press. This is due, first of all, to the initiative of the Russian Government(2) to begin, following the example of some states, financing the construction and operation of infrastructure facilities using so-called infrastructure bonds.

Thus, the government’s program of anti-crisis measures provides for the placement of Russian Railways infrastructure bonds (on January 29, 2009, the company registered 7 bond issues, which it positions as infrastructure bonds(3). However, Russian Railways bonds are not infrastructure bonds, since the issuance documents do not provide guarantees for the intended use of raised funds , security for bonds from proceeds from infrastructure facilities and other provisions inherent in infrastructure bonds. The same are mistakenly understood as corporate bonds issued to raise funds for the implementation of an infrastructure project (4).

Indeed, financing of an infrastructure project is carried out by issuing bonds along with loans and government subsidies in the current world practice. These bonds are divided into project bonds, revenue bonds, and general obligation bonds. This division depends mainly on who is the issuer (private company or public entity), as well as on the security of the bonds and the resulting features. These types of bonds in economic literature and journalism are often combined under the general name “infrastructure bonds”.

This article briefly describes these types of bonds and discusses currently available proposals for attracting financing using bond issues for infrastructure facilities in Russia.

PROJECT BONDS

General characteristics

Project bonds are securities issued by a private project company that owns an infrastructure asset (whether under construction or has already been constructed), and whose payments are made from the proceeds from the operation of the infrastructure asset, and whose issuance documents contain covenants allowing the bondholders (and their representatives ) monitor circumstances that significantly affect the cash flow of the financed infrastructure project.

The project company is controlled by the sponsor - the person initiating the construction and operation of the infrastructure facility. The project company owns the rights of claim under agreements on the operation of its infrastructure facility, which it provides as one of the collateral for obligations under the raised loan, including under issued project bonds. The design company monitors the progress of work on the construction of an infrastructure facility by the contractor and manages it after the facility is put into operation.

The collection of operating payments (at the expense of which the obligations under the project bonds are fulfilled) from the end users of the infrastructure facility is carried out by the facility operators, who are appointed by the project company.

Project bondholders have the ability to control the activities of the project company by granting the bondholder representative the right to receive from the project company and operators any information regarding the operation of the infrastructure facility. In addition, a representative of the bondholders may be elected as a member of the board of directors of the project company in order to be able to control the election of the sole executive body design company.

Project bonds and government support measures

A project company is created within the framework of both purely private projects and public-private partnership projects. In the latter case, the project company, as a rule, acts as a concessionaire under a concession agreement with the state (concessor).

The state is often involved in projects that require long-term construction of capital-intensive infrastructure that has significant social significance, or in projects in which the type of infrastructure is new. At the same time, the state usually assumes only part of the credit risks in relation to the infrastructure facility by providing government support measures.

The most commonly used government support measures are measures such as:

1. provision of a state guarantee for the obligations of an insurance organization that insures the issuer's risks for obligations to bondholders;
2. provision of a state guarantee within the framework of a concession agreement (guaranteeing a certain level of revenue from the operation of an infrastructure facility, a certain level of exchange rate, etc.);
3. tax benefits;
4. provision of state guarantees for project bonds.

Such government support measures significantly increase the credit quality of project bonds (although they do not directly guarantee obligations under the bonds(5), since they are aimed at ensuring a certain level of profitability of the infrastructure facility (payments on project bonds are secured by proceeds from the operation of the infrastructure project).

The credit quality of state support measures depends on characteristics such as: conditions of execution (for example, is it necessary to obtain additional approval for expenditures from the budget for payments under the state guarantee; is it necessary for payments under the state guarantee to default on bonds or is sufficient advance notice of insufficiency funds for payments on bonds); priority of execution under the state guarantee; political risks associated with the implementation of an infrastructure project (for example, political support for some projects may significantly decrease during the election campaign).

ABOUT THE TERM “INFRASTRUCTURE BONDS”

The Russian-language term “infrastructure bonds” is formed by tracing the translation of the phrase infrastructure bonds, which is used in economic and legal meanings. In the literature devoted to the financing of infrastructure projects, this term often refers to all bonds that are issued to finance an infrastructure facility (infrastructure bonds in the economic sense) (6). In a purely legal sense, the term
infrastructure bonds are used in the legislation of some US states(7) and denote those bonds that are issued exclusively to finance the construction (purchase, reconstruction) of an infrastructure facility.

A more common legislative term in the United States to refer to bonds used to finance an infrastructure project is revenue bonds (8), (9).

REVENUE BONDS

Features of bonds secured by proceeds

Issuer

Bonds secured by proceeds are bonds that are issued by public legal entities (state, municipality) and/or public legal entities (legal entities established by a public legal entity or in the authorized capital of which it has a predominant participation, as well as legal entities performing any public functions (based on an agreement with a public legal entity or a license) (hereinafter referred to as the public entity).

Security

As collateral for such bonds, revenues from the operation of an infrastructure facility (taxes, duties, tariffs, etc.) are provided. Public entity assets generally do not secure the obligations of bonds secured by the proceeds.

Unlike project bonds, this type of bond can be secured by proceeds from the operation of not only the infrastructure facility for which they were issued, but also from other infrastructure facilities owned by the public entity (10).

Tax neutrality

An important advantage of bonds secured by proceeds is the tax neutrality regime. According to it, income from bonds secured by proceeds is not subject to taxes at both the federal and local levels. Thanks to this, it significantly reduces interest rate on bonds secured by proceeds, thereby reducing the costs of public education.

Structure of a transaction for issuing bonds secured by proceeds

In general, the procedure for issuing bonds secured by proceeds is as follows.

The sponsor (the person who initiated the construction and operation of the infrastructure facility) and at the same time the issuer of bonds secured by proceeds are state/municipal authorities or state/municipal legal entities. Collection of revenues from the operation of an infrastructure facility can be carried out (a) either by the sponsor into an account set aside for this purpose, (b) or by a representative of the bondholders, (c) or by an operator appointed by the sponsor.

Proceeds from the operation of an infrastructure facility are the main source of payments and security for the issuer's obligations under bonds secured by the proceeds. The infrastructure object is not transferred as security for obligations
on bonds secured by proceeds and is retained by the public entity.

In the United States, a public entity (sponsor) can enter into an agreement with a private company (developer), on the basis of which the private company receives the right to operate an infrastructure facility. In this case, payments to the private company under such an agreement are used to pay interest and repay bonds secured by the proceeds. At the same time, the ownership of the infrastructure object remains with the public entity. Upon expiration of the agreement with a public entity, a private company has the right to purchase the infrastructure facility, provided that it has fulfilled all the conditions of such an agreement.

In addition, thanks to municipal programs for financing infrastructure facilities (11), a private company has the right to initiate the construction and operation of an infrastructure facility, as well as the issue of bonds secured by proceeds. Based on such programs, the public entity selects the private company whose application most closely meets the requirements established in the program. At the same time, the issuers of bonds secured by proceeds and the owners of the infrastructure are public entities.

Benefits for the state

Issuing revenue-backed bonds is one way to attract private investment in an infrastructure project. However, such bonds constitute only a part of the overall structure of infrastructure financing, which usually provides for federal and subfederal subsidies, private investment in the form of direct participation in the project (through concession) and lending.

An important advantage of revenue-backed bonds as a debt instrument is that the assets of a public entity, with the exception of infrastructure proceeds, are “protected” from the claims of revenue-backed bondholders. In addition, a public entity's primary obligations under revenue-backed bonds are limited to cash obligations. Bondholders do not receive any ownership interest in the infrastructure being financed.

Implications for private investors

Investing in bonds secured by proceeds has such advantages for private investors as a reduced tax burden on income from bonds and a significant reduction in legal risks associated with the status of the issuer, the issue of bonds and the use of raised funds:

• income from bonds secured by proceeds is not subject to taxes;
• a significant reduction in legal risks occurs due to the legislative consolidation of the main elements of the transaction structure:
• the issuer's right to issue bonds;
• provision of revenues from an infrastructure facility as collateral;
• targeted use of proceeds from an infrastructure facility as collateral.

Thus, legislative regulation prevents the possibility of recognizing a transaction to issue bonds secured by proceeds as invalid. And any misuse of proceeds from the operation of an infrastructure facility securing bonds is invalid.

Legislative regulation of bonds secured by proceeds

There is special legislation on revenue-backed bonds in countries such as the USA12 and Poland.

Proceeds-backed bond laws typically cover the following issues:

• granting the right to issue bonds secured by proceeds to public entities;
• securing the exclusive purpose of the security provided under the bonds (i.e., proceeds from the operation of an infrastructure facility) for the fulfillment of obligations under the bonds, as well as a prohibition to foreclose on such security for claims not related to obligations under the bonds secured by the proceeds, including including in the event of bankruptcy of their issuer;
• procedure for making decisions on issuing bonds secured by proceeds(13);
• prohibition of making claims on a public education in respect of its property, which was not provided as security for bonds secured by revenues (primarily in relation to the budgetary revenues of a public education)(14), (15);
• special rules of budget legislation regarding the issue and circulation of bonds secured by revenues (16);
• some conditions for issuing bonds secured by proceeds(17);
• ways to finance public education to provide it with the necessary funds to issue revenue-backed bonds.

Consolidation at the level of law of the main elements of the structure of a transaction for the issue of bonds secured by proceeds (rules on the issuer, on security for bonds, etc.) is a significant guarantee of the rights of investors, since it eliminates possible disputes and uncertainty in the exercise of their rights directly enshrined in the law. This, in turn, predetermines a fairly high credit rating of bonds secured by proceeds.

Bonds with general obligation of the issuer

Not only the proceeds from the operation of an infrastructure facility, but also all the property of the public entity (the issuer) can serve as security for payments on bonds. Such bonds are called general obligation bonds(18). To make payments on them, if the revenue from the operation of the infrastructure facility is insufficient, other property of the issuer is used (primarily, this concerns budget tax revenues).

To make a decision to issue bonds with a general obligation of the issuer, the approval of the legislative body (approval in a referendum, consent of an authorized higher body) is usually required, since this establishes additional budget expenditure obligations.

As a rule, general obligation bonds are issued in cases where it is necessary to provide financing for large, expensive projects over a long period of time.

PROPOSED BOND MODELS FOR FINANCING AN INFRASTRUCTURE PROJECT

Currently, Russia has taken a number of measures to introduce so-called infrastructure bonds into circulation. These proposals, including the report of the Russian Ministry of Economic Development on infrastructure bonds (19), are based on a model in which the issuer of bonds is a private legal entity (a concessionaire implementing an infrastructure project on the basis of a concession agreement). Thus, the Federal Service for Financial Markets proceeds from the understanding of infrastructure bonds as securities with a long maturity, the performance of which is secured by a state guarantee or a guarantee of the state corporation VEB(20).

However, for such “infrastructure bonds” there is no provision for the intended use of such bonds, ensuring payments on the bonds with proceeds from the infrastructure facility, and there are no mechanisms for disclosing information on the progress of the implementation of the infrastructure project, which should allow bondholders to control the required level of proceeds for payments on the bonds. Therefore, the FFMS proposals regarding infrastructure bonds actually mean corporate bonds. However, corporate bonds and infrastructure bonds (21) are two fundamentally different instruments.

The first is a type of financing that is carried out “against” the general financial position of the borrower (issuer), i.e., payments on bonds are made from the operating revenue of the issuer, and not from a specific source. In contrast, infrastructure bonds are a type of financing in which lenders assess the risks associated with a particular infrastructure project, since payments on the bonds are made from the proceeds from the operation of the infrastructure facility.

NECESSARY LEGISLATIVE CHANGES IN RUSSIA

The infrastructure project financing instruments described above—project bonds issued by private companies and revenue-backed bonds issued by public entities—can be used in Russia, subject to changes to a number of regulations. Such legislative changes should, firstly, enshrine at the legislative level norms that make it possible to implement the basic principles of project financing, and secondly, ensure the issuance of infrastructure bonds.

Implementation of the basic principles of project financing:

• expansion of the collateral for securities. Currently, securities legislation allows only two types of property to be provided as collateral for securities: securities and real estate. This list should be expanded, and any property should be accepted as collateral for securities, with the exception of property whose circulation is prohibited. Thus, within the framework of project financing, rights of claim under agreements on the operation of an infrastructure facility are usually provided as collateral ( rental payments, fees for using the highway, airport taxes, tariffs for port loading and unloading operations, etc.);

Infrastructure bonds are a type of financing in which lenders assess the risks associated with a particular infrastructure project, since payments on the bonds are made from proceeds from the operation of the infrastructure facility.

• exclusive subject of activity of the design company. The exclusive subject matter of the project company allows project investors to control the circle of persons who can make claims against the project company. Such control makes it possible to significantly reduce the credit risks of investors in the project, since it eliminates the possibility of claims being made against the project company by persons who are not involved in the process of implementing the infrastructure project. In addition, the possibility of unlawful disposal by the project company of property involved in an infrastructure project (primarily an infrastructure facility) is eliminated;
• limiting the possibility of reorganization, liquidation and bankruptcy proceedings in relation to the project company. To ensure proper fulfillment of obligations to creditors, the project company must exist until all its obligations to creditors are fully fulfilled. Therefore, it is necessary to introduce the possibility of limiting the right of the project company to initiate the procedure for its reorganization or liquidation. In addition, it is required to limit the circle of persons who have the right to file an application with the arbitration court to declare the project company bankrupt;
• general meeting of bondholders and representative of bondholders. A general meeting of bondholders is necessary primarily to (a) be able to change the decision to issue bonds and (b) make decisions on the application of specific legal remedies for the rights of bondholders. Thanks to the general meeting, it becomes possible to make a decision that is binding on each bondholder, including those who voted against such a decision.

The representative of the bondholders will act on behalf of all bondholders, which will allow (a) the issuer to interact during the period of circulation of project (infrastructure) bonds with one person (and not with all bondholders) and (b) to protect the rights in the fastest and most professional manner and the interests of bondholders (for example, when foreclosure on collateral for project (infrastructure) bonds).

Ensuring the issuance of infrastructure bonds:

• the possibility of issuing infrastructure bonds by relevant authorities in the field of infrastructure. It is necessary to provide the opportunity to issue bonds to state (municipal) bodies performing state functions (local government functions) in the relevant area of ​​infrastructure (for example, the Ministry of Transport of the Russian Federation, the governing body of a constituent entity of the Russian Federation and the local government body in the field of road infrastructure). This will significantly reduce the time for making decisions or taking actions that become necessary during the circulation period of infrastructure bonds (for example, agreeing on information disclosure documents)(22);
• segregation of budget funds within the framework of an infrastructure project. When issuing infrastructure bonds, the issue documents of which provide for the management of an infrastructure facility budgetary institutions, accounting for receipts and payments associated with an infrastructure facility must be carried out separately from all other budgetary funds of the corresponding budget (while maintaining the possibility of budgetary control). This measure is aimed at preventing the mixing of income from the use of an infrastructure facility owned by the state (municipal) (which is provided as collateral for infrastructure bonds) with other budget revenues;
• ensuring payments on infrastructure bonds through regulated tariffs. To provide issuers of infrastructure bonds with the opportunity to cover the lack of funds for payments on infrastructure bonds in the event of a decrease in the amount of regulated tariffs collected from the operation of an infrastructure facility, the legislation must provide for the right to establish in the issuance documents the procedure and conditions for changing (including increasing) regulated tariffs during operation infrastructure facility without the need to obtain special permission from the body in the field of state regulation of prices (tariffs) for goods (services) (Federal Tariff Service);
• no taxation of income from payments on infrastructure bonds. Must be installed in Tax Code a zero percent tax rate on interest income on infrastructure bonds, as well as profit on the sale of infrastructure bonds by their owners.

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(1) Infrastructure bonds are attracting growing interest from major financial institutions around the world. For example, ASEAN+3 member states have created a special working group to develop recommendations on the necessary legislative changes to ensure the ability to issue infrastructure bonds in ASEAN+3 countries.

(2) The Federal Service for Financial Markets has already developed the concept of the Federal Law “On Infrastructure Bonds”.

(4) See, for example, “Concessionary income” - commentary by the Deputy Head of the Federal Financial Markets Service of Russia A. Yu. Sinenko to the newspaper RBC Daily about the initiative of the service to issue infrastructure bonds (http://www.ffms.gov.ru/document. asp?ob_no=107263&print=1); Ministry report economic development Russian Federation, prepared on behalf of the Government of the Russian Federation No. KA-P13-4211 dated July 14, 2008.

(5) With the exception of government guarantees on bonds.

(6) See, for example, Bond Financing for Infrastructure Projects in the ASEAN+3 Region, 2008 (Asian Development Bank).

(8) See, for example, Oakland Municipal Code Section 4.40, Ohio Revised Code Section 6123, Michigan Revenue Bond Act of 1933, Revised Sections 349.400-349.670 laws of the state of Nevada (USA) (The Nevada Revised Statutes).

(9) There are other names, for example industrial development bonds.

(10) As, for example, in the construction of infrastructure facilities by the Port Authority of New York and New Jersey.

(11) Proceeds-Backed Bond Program Federal District Columbia (USA) (District of Columbia Revenue Bond Program), as well as the Michigan Industrial Development Bond program (USA).

(12) The fact that proceeds-backed bonds are described using the basic characteristics (as well as the term) of bonds issued in the United States is explained by the fact that the largest number of transactions and the largest volume of proceeds-backed bond issuances take place in the United States. The US experience in financing the construction and operation of infrastructure using revenue-backed bonds is used to develop their own revenue-backed bond institutions in countries such as the UK, Japan, and Singapore. (see, for example, Financing the Future A report on innovative financing mechanisms for major regeneration projects in London April, 2004 (by Economic and Social Development Committee).

(13) For example, the need to obtain the prior consent of the authorized body is established (Article 11-43-315, Section 43 of the Code of Laws of South Carolina, USA) (South Carolina Transportation Infrastructure Bank Act).

(14) Except in cases of issuance of bonds with a general obligation of the issuer.

(15) Article 11-74-10 sec. 74 of the Illinois Municipal Act (USA) (The Industrial Project Revenue Bond Act).

(16) According to Art. 23b of the Law of the Republic of Poland “On Bonds” of June 29, 1995, when calculating the limits for the assumption of debt obligations by a public entity, the amount of obligations of the public entity under infrastructure bonds is not taken into account.

(17) For example, there is a time limit for which infrastructure bonds may be issued (43 South Carolina Code 11-43-340) (South Carolina Transportation Infrastructure Bank Act).

(18) General obligations bonds.

(19) Report of the Ministry of Economic Development of the Russian Federation, prepared on behalf of the Government of the Russian Federation No. KA P13-4211 dated July 14, 2008.

(20) To ensure the possibility of issuing infrastructure bonds, the FFMS changed the rules for including bonds in the quotation list “A” (see Order of the FFMS No. 07-102/PZ-N dated October 9, 2007 “On amendments to the regulations on activities for organizing trade on the securities market"). See also the interview with the Deputy Head of the Federal Financial Markets Service of Russia about this Order (http://www.fcsm.ru/document.asp?ob_no=182108).

(21) In relation to Russian practice, it is proposed to refer to infrastructure bonds as bonds secured by revenues (which, in fact, are called infrastructure bonds in the legislation of a number of US states).

(22) Currently, state (municipal) bonds can only be issued by financial authorities (Ministry of Finance of the Russian Federation, financial authority of a constituent entity of the Russian Federation, financial authority of a municipality).

Currently, a situation has developed in our country in which the question of the need for some special infrastructure bonds is becoming very pressing. On the one hand, all analysts unanimously argue that most economic problems are related to the lack or poor quality of infrastructure; on the other hand, due to the general decline in the financial market, the arsenal of tools that investors can use to invest the funds they accumulate is becoming narrower.

The structure of the Russian financial market does not include such an instrument, known to developed financial markets, as an infrastructure bond. This limits the possibilities of attracting capital in the creation and development of transport, energy, housing and communal services and other infrastructure. Meanwhile, the need for investment is assessed as colossal, and it cannot be satisfied in full solely at the expense of the state.

In such circumstances, one of the important and expected areas for improving the market seems to be expanding the list of financial instruments by introducing infrastructure bonds into circulation.

International experience

Infrastructure bonds are widely used in many countries: USA, Australia, Chile, India, etc. In a number of these countries, infrastructure projects are financed by pension funds through the issuance of infrastructure bonds.

USA

In the United States, the practice of issuing municipal infrastructure bonds is widespread. Municipal bonds come in two types: general purpose bonds and project revenue bonds. The source of debt repayment for the latter are payments from consumers of services, for example, for the use of water, electricity or roads. In addition, industrial development bonds, etc., are issued in the United States. The issuer of bonds is most often the authorities state power different levels.

Municipal loans are among the most reliable financial instruments: over 35% of the volume of these instruments are held by mutual funds, about 15% are in the portfolios of insurance companies, and about 10% are in the portfolios of banks.

In the United States, funds from pension funds are invested in infrastructure bonds. Thus, in 1993, the Connecticut state pension fund invested $50 million in a project to create new jobs in the state at 15% per annum.

Australia

In Australia, the main issuer of infrastructure bonds is the government.

Infrastructure bonds are regulated by two agencies: the Australian Taxation Office and the Development Grants Authority (the latter is responsible for ensuring that the bonds comply with legal requirements). The Development Grants Law states that infrastructure borrowings are carried out in the form of:

direct borrowing

indirect borrowing (providing credit)

refinancing

The legal restriction on the circulation of infrastructure bonds is a clearly defined list of objects that are considered infrastructure. These include ground and air transport, power generation facilities, electricity supply, gas supply, water supply, sewerage and water treatment facilities. The public is charged a fee for the use of these facilities.

In general, Australian infrastructure bonds provide their holders with the opportunity to:

in the future, make a profit from the implementation of infrastructure projects

receive tax preferences (maximum 15 years)

annually review the issue of your participation in project financing

Chile

In Chile, the assets of pension funds are invested through bonds in specific projects - the construction of housing and communal services, airports, roads, etc. The first infrastructure bond in Latin America was issued here in November 1998. The source of funds for the issue was money from pension funds, as well as funds accumulated in the hands of insurers. The launch of the first infrastructure bonds was initiated by the insurance company Santander. The issuer of infrastructure bonds in Chile is the concessionaire. It should be noted that concession projects in Chile using the infrastructure bond mechanism have received high credit ratings.

India

Issuers of infrastructure bonds in India are mainly banks (eg ICICI and FDBI). There are two types of infrastructure bonds common in this country: “tax-saving bonds” and regular income bonds.

“Tax-saving” bonds allow you to receive a deduction from the tax base for income tax in the amount of 20% of the invested amount. At the same time, the legislator established a maximum amount of investment in infrastructure bonds, as well as a maximum tax deduction).

Regular income bonds include pension bonds, educational bonds, income-increasing bonds, etc.

Banks provide loans to investors against infrastructure bonds (as well as their collateral). The size of a loan secured by infrastructure bonds depends on the economic performance of a particular infrastructure project. The interest rate on infrastructure bonds does not depend on the level of inflation, and therefore in the long term these securities may not be very profitable. In general, the holder of Indian infrastructure bonds is not immune from non-receipt of funds invested in these bonds.

In general, the international practice of issuing and trading infrastructure bonds has the following features compared to traditional corporate bonds:

targeted use of funds received from the placement for the implementation of long-term investment infrastructure projects (roads and railways, ports, airports, power lines, pipelines and oil and gas pipelines)

carrying out the issuance of infrastructure bonds, mainly as part of the implementation of concession agreements between the state or local authorities and the concessionaire company, which acts as the issuer of bonds

The main investors investing in infrastructure bonds are institutional (pension funds, insurance companies) and other conservative investors

long-term period of circulation of infrastructure bonds, tied to the period of construction (reconstruction) of the infrastructure facility and to the period of its operation (on average 15–25 years)

ensuring the bond issue with government guarantees, risk insurance, bank guarantees and sureties, as well as other security guarantees

Our way

The main consumers of future infrastructure bonds are, of course, conservative investors (pension funds, insurance companies). This is primarily due to the fact that the requirements for the composition and structure of their assets are quite stringent and therefore, in conditions of a financial crisis, their ability to invest accumulated funds is constantly decreasing.

Obviously, since all the requirements and restrictions related to the structure of assets of conservative investors are tied to the listing rules, the fastest and most optimal way to remove such restrictions was to change these very rules.

By its Order dated December 23, 2008 No. 08-59/pz-n, the Federal Financial Markets Service of Russia supplemented the list of exceptional cases when securities can be included in the quotation lists without complying with some of the relevant requirements - in particular, in the absence of a monthly volume of transactions, the insufficient period of existence of the issuer, his absence of losses, as well as the absence of reporting according to international standards. The result of the introduction of these relaxations for the listing procedure was that certain bonds, which are issued, possibly, to raise funds for infrastructure projects (at least when it comes to concessions, this is exactly the case), will be able to count on the fact that These bonds will invest funds from pension funds and insurance companies. In this regard, with some degree of convention, we can say that as a result of these changes initiated by the regulator, an opportunity has arisen in Russia to issue quasi-infrastructure bonds.

Why quasi-? Because to a greater extent, all these relaxations apply to a rather limited circle of issuers. The changes adopted by the Federal Financial Markets Service are only the beginning of the path to introducing infrastructure bonds as a special instrument of the Russian financial market. At the moment, infrastructure bonds are just a name, and not an instrument with real content.

The relaxations described above, in general, are absolutely logical: it is obvious that bonds issued by a concessionaire company (as a rule, a specially created project company) will not meet even minimum requirements to be included in the quotation lists, not to mention meeting the requirements of the highest quotation lists. However, although such issuers do not meet the requirements for reliable issuers, it should be noted that concluding a concession agreement with the state is a lengthy and costly process. In addition, due to the requirements for the concessionaire, it should be recognized that the very fact of concluding a concession agreement is the basis for considering the concessionaire company a serious borrower.

In the case of guaranteeing the fulfillment of obligations under bonds by a state guarantee or Vnesheconombank, additional arguments in favor of the fact that these bonds can be included in quotation lists with certain concessions seem unnecessary.

The reasons why we say that the measures taken are limited are as follows:

1. The law on concession agreements, introduced in 2005, was not actually applied until the middle of last year due to a number of shortcomings that made concessions extremely unattractive for private investors. Last summer, significant amendments were made to the Law, which will allow us to talk about concessions as a valid instrument. However, the practice of applying this Law suggests that there are unlikely to be more than 5–10 concluded concession agreements in our country in the near future (if we are talking about federal concessions and concessions concluded with constituent entities of the Russian Federation). So
Thus, even if all concessionaires consider it necessary to issue quasi-infrastructure bonds, this is unlikely to allow us to say that there is a market for infrastructure bonds in Russia and any competition among borrowers.

2. If we talk about state-guaranteed bonds, then, despite the fact that the legislation of the Russian Federation provides for the possibility of providing long-term state guarantees for the obligations of third parties, including those arising as a result of their issuance of securities, the provision of state guarantees for the obligations of issuers securities is a real operating mechanism, and despite the fundamental possibility of attracting investments in a project under a state guarantee, the very fact of issuing a state guarantee does not make the bonds infrastructure with all the ensuing consequences.

At the same time, according to Art. 15 of the Federal Law “On the Peculiarities of the Issue and Circulation of State and Municipal Securities”, in the event that the guarantor (the Russian Federation, a constituent entity of the Russian Federation) fulfills obligations on corporate securities instead of the principal (issuer), the guarantor has the right to demand from the principal, by way of recourse, reimbursement of the amounts paid to the beneficiary under a state guarantee. The rule on the right of recourse provided for by this norm, as well as the requirement of budget legislation that the principal must have security for the issued state guarantee, is key factor, restraining the use of government guarantees for the purpose of forming infrastructure bonds as a stock market instrument, since not each of the proposed issuers of infrastructure bonds will be able to satisfy the requirement for the availability of collateral for guarantees provided by the state. In relation to concessions, this circumstance must be taken into account in conjunction with the prohibition established in the Law “On Concession Agreements” on the transfer by the concessionaire of his property rights under the concession agreement as collateral.

As for the possibility of a state guarantee for quasi-infrastructure bonds, the question arises of the appropriateness of such security from the point of view of government spending. The fact is that state guarantees for the purposes of budget legislation are the same expenses, and therefore the state actually pays through budget expenses for what the concessionaire was supposed to pay. In addition, the size of state guarantees is in any case limited by budget legislation, and the issuance of guarantees is a complex administrative procedure.

Taking into account all the arguments presented, it should be recognized that the introduced quasi-infrastructure bonds will not solve the problems that they are supposed to solve, and will not become a universal way to attract investment in infrastructure projects, but will only be a personal tool for attracting investment in individual projects.

The changes made to the rules for listing securities solve only one of the objectives, namely, they allow money accumulated by pension funds to be invested in individual infrastructure projects. These changes do not solve the systemic problems of lack of financing for infrastructure projects. Moreover, without further progress towards introducing into legislation norms for special regulation of the procedure for issuing infrastructure bonds, the word “infrastructure” will continue to remain nothing more than a loud epithet that has no legal or economic meaning.

At the same time, neither the Federal Financial Markets Service nor other government bodies are going to stop at the intermediate stage achieved through changes in by-laws. Currently, the process of developing a full-fledged law that will regulate procedures related to the implementation of infrastructure projects, including issues of issuance and circulation of infrastructure bonds, is in full swing.

Based on foreign experience in the use of infrastructure bonds, as well as an analysis of the current situation in the Russian Federation, we can highlight the following options for implementing this instrument in Russian conditions, in which infrastructure bonds will be:

type of government bonds of a targeted nature

corporate bonds of a targeted nature and secured by government guarantees/guarantees of Vnesheconombank

derivative securities, the issuer of which may be the entity financing the infrastructure project

In order for infrastructure bonds to become a universal instrument used in the implementation of projects in various industries, varying amounts of financing and with different distribution of ownership rights to the infrastructure facility being created, the regulatory framework governing infrastructure bonds will have to provide for the possibility of issuing bonds for any of the specified schemes with the most flexible conditions for the issuance and circulation of bonds so that the zone of possible application of these bonds would include not only megaprojects at the federal level, but also projects of constituent entities of the Russian Federation and even municipalities, projects involving not only the construction of infrastructure facilities, which are transferred to the state immediately after construction , but also projects implemented in numerous quasi-concessional ways (LCC contracts, service contracts, etc.).

In any case, the general distinguishing feature of the new type of bonds will be the targeted nature of spending the funds received by the issuer as a result of the bond issue. At the same time, due to the fact that in present moment There is no legal definition of infrastructure in the legislation; it will be necessary to introduce this definition into the law and include in this definition not only transport infrastructure, but also social, energy, utilities, etc.

Naturally, in addition to the above aspects, the law must regulate the relationship between the bank and the issuer of infrastructure bonds, as well as the specifics of issuing derivative securities (if this option is chosen). It is necessary to establish requirements for bond issuers and for infrastructure projects for which the issue is planned to finance. The law will certainly regulate mechanisms for state control over all participants in the process, since the issue of ensuring the fulfillment of obligations by the issuer is key both from the point of view of ensuring the rights of investors and from the point of view of the success of the implementation of infrastructure projects, the financing mechanism of which will include infrastructure bonds.

Preparing a regulatory framework governing infrastructure bonds in today's difficult conditions gives developers an unprecedented opportunity to take into account all the shortcomings of regulating corporate bonds already at the stage of introducing a new instrument into circulation. At the same time, the regulator’s task is greatly simplified due to the fact that infrastructure bonds, due to their targeted nature, unlike ordinary corporate bonds, fully reflect the essence of investment, which consists not in simply supplying the issuer with funds from trusting investors, but in financing specific projects with specific and measurable parameters. In such a situation, those measures of control over the issuer’s activities on the part of investors, which have only now begun to be considered in relation to corporate bonds, will look absolutely logical and, moreover, the targeted nature of investments in infrastructure bonds will allow the regulator to establish closer control over bond issuers, which will ultimately will lead to greater protection for investors in infrastructure bonds from the problems that the debt financing market is currently facing.

Thus, according to the Order of the Government of the Russian Federation dated May 4, 2008 No. 615-r, state guarantees of the Russian Federation were provided for a total amount of up to 28 billion rubles for borrowings from OJSC AHML, carried out in the form of issuing coupon documentary long-term bonds.

08.02.2018
Events. The Central Bank adjusted the dictionary. New concepts have appeared in the Bank of Russia program document. Yesterday, the Bank of Russia released a policy document describing plans for the development and application of new technologies in the financial market in the coming years. The main ideas, concepts and projects have already been announced by the regulator in one way or another. At the same time, the Central Bank introduces and discloses new terms, in particular, RegTech, SupTech and “end-to-end identifier”. Experts note that these areas have been successfully developing in Europe for a long time.

08.02.2018
Events. The State Duma issued capital a pass to Russia. It was decided to repeat the one-time business amnesty. The Russian State Duma adopted on Wednesday in the first, and a few hours later - in the second reading, a package of bills initiated by Vladimir Putin on the resumption of the capital amnesty. The new act of “forgiveness” was announced as the second stage of the 2016 campaign, which was then presented as a one-time campaign and was actually ignored by business. Since the attractiveness of the Russian jurisdiction and trust in its law enforcement officers have not increased over the past two years, the bet is now placed on the thesis that capital must be returned to the country because it is worse for them abroad than in Russia.

07.02.2018
Events. Control and supervision are tailored to fit the figure. Business and authorities compared approaches to reform. The results and prospects for the reform of control and supervisory activities were discussed yesterday by representatives of the business community and regulators as part of the “Russian Business Week” under the auspices of the Russian Union of Industrialists and Entrepreneurs. Despite a 30% decrease in the number of scheduled inspections, businesses complain about the administrative burden and call on the authorities to respond more quickly to proposals from entrepreneurs. The government, in turn, plans to revise mandatory requirements, reform the Code of Administrative Offences, digitalization and acceptance of reporting in the “one window” mode.

07.02.2018
Events. Transparency will be added to issuers. But investors are waiting for additions to shareholder meetings. The Moscow Exchange is preparing changes to the listing rules for issuers whose shares are on the highest quotation lists. In particular, companies will be required to create special sections on their websites for shareholders and investors, the maintenance of which will be controlled by the exchange. Large issuers already meet these requirements, but investors consider it important to enshrine these obligations in the document. In addition, in their opinion, the exchange should pay attention to the disclosure of information for shareholder meetings, which is the most sensitive issue in the relationship between issuers and investors.

07.02.2018
Events. The Central Bank of Russia will read the advertising carefully. The financial regulator has found a new field for supervision. Not only the Federal Antimonopoly Service, but also the Central Bank will soon begin to evaluate the integrity of financial advertising. Starting this year, as part of behavioral supervision, the Bank of Russia will identify advertisements of financial companies and banks containing signs of violations and report this to the FAS. If banks receive not only fines from the FAS, but also recommendations from the Central Bank, this could change the situation with advertising in the financial market, experts say, but the procedure for applying supervisory measures of the Central Bank in the new area has not yet been described.

06.02.2018
Events. Not by accent, but by passport. Foreign investments under the control of Russians will remain without international protection in the spring. A government bill depriving investments of foreign companies and persons with dual citizenship controlled by Russians from the protection of the law on foreign investment, in particular, guarantees of freedom to withdraw profits, will be adopted by the Russian State Duma in early March. The document does not recognize investments through trusts and other fiduciary institutions as foreign. The White House is still ready to consider structures controlled by Russians that invest in strategic assets in the Russian Federation as foreign investors - but for them, as before, this only means the need to approve transactions with the Foreign Investment Commission.

06.02.2018
Events. Government agencies are not given banks. FAS Russia intends to limit the expansion of the public sector in the financial market. The Federal Antimonopoly Service has developed proposals to limit purchases of banks by government agencies. The FAS plans to amend the law “On Banks and Banking Activities” and is currently working on them with the Central Bank (CB). An exception may be the reorganization of banks, ensuring the availability of banking services in areas that need it, as well as issues of national security. The head of the Central Bank, Elvira Nabiullina, has already supported this initiative.

06.02.2018
Events. Online audit was given a chance. IIDF is ready to support remote inspections. Online auditing, until now a side branch of this business, which was mainly carried out by unscrupulous companies, has received support at the state level. The Internet Initiatives Development Fund invested 2.5 million rubles in the AuditOnline company, thus recognizing the promise of this area. However, market participants are confident that online audits have no legitimate future - remote audits contradict international auditing standards.

05.02.2018
Events. It is recommended to refrain from legal transactions. The Central Bank of Russia considered “hidden trust management” unethical. The Bank of Russia warns professional participants against using some popular, but not entirely ethical practices in relation to clients in the stock market. The schemes described in the regulator’s letter are within the legal framework, so the Central Bank limited itself to recommendations. But in fact, the regulator is testing the use of motivated judgment, the right to use of which has not yet been approved by law.

05.02.2018
Events. The absorption will be less entertaining. The Central Bank of Russia is encouraging banks to reduce lending to M&A transactions. The idea of ​​the Central Bank to encourage banks to lend not to mergers and acquisitions of companies, but to the development of production takes on concrete features. The first step could be to instruct banks to create increased reserves for loans issued for M&A transactions. According to experts, this will reduce such lending, but in order for bank resources to go to the development of production, additional incentive measures will be required.