The Baltic bond market is starting to attract new companies and investors
Modestas Sudnius, the CEO of Eleving Group for Forbes Latvia
Bonds are back in fashion in the Baltics
The Baltic bond market has shown long-awaited growth in recent years. Companies such as L.J. Linen, Coffee Address Holding, Big Bank, CleanR, Eco Baltia, etc., have already announced their bond issues. Meanwhile, many are actively preparing for new issuance and refinancing campaigns. We can find 89 active bond issues on the Nasdaq Baltic Bond List, both in the form of corporate and government bonds on the Baltic Regulated Market and corporate bonds on the First North Bond List.
There are several factors behind the bond market’s activation. One of the most important ones is the limited availability of bank finance for business development. Banks are still quite conservative in their business lending, and their risk appetite is much lower than the demand from the entrepreneur community. While some banks are cautious in providing funding, for other banks helping companies to issue bonds has become a niche service through which new capital market entrants are groomed and introduced to the broader market.
The bond issues that have already taken place have enabled companies to raise the funds to grow their businesses and relatively high bond returns contribute to the growth of the respective capital market segment. The positive experience, given the lower volatility and more stable cash flows compared to the stock market and the current level of returns, creates a demand for this type of product amongst investors. Who does not want to invest money at relatively high and fixed interest rates and with comparably lower risk in times of economic uncertainty and rapid inflation? Today, we see that bond yields in the Baltics are much higher than in Western Europe, and here, bonds with a reasonable level of risk, trading at 9-14% yield, are not uncommon. However, from the issuers’ point of view, high-interest rates are one of the negatives, as it has become expensive to attract any investment. As the interest rates normalize, corporate interest in issuing bonds is expected to increase even further.
It is also essential to continue working with the public to educate people about investment opportunities. I believe that not enough is being done in this area in the Baltics. A much more significant role could be played by banks, which are already the closest partner to people in servicing their overall finances. Banks could be more active in letting people know about the new companies entering the capital market, explaining different financial instruments, where to look, and how to purchase bonds. They could even simplify the process of buying bonds or create products through which to invest in Baltic bonds. Equally, issuers themselves have a responsibility here, and they have to do their homework.
Participation in the Baltic Capital Market is an opportunity to test your capabilities before global investment markets are tapped
We have been active in the Baltic capital market since 2014, and the investments we have raised here have laid the foundations for our business growth. Now the Baltic capital market has become part of a broader investment strategy for us. Eleving Group’s total assets at the end of 2022 are approaching the EUR 400 million mark, with revenues of almost EUR 184 million, net profit before FX of EUR 27.8 million, and EBITDA of EUR 71.6 million. Such scale and needs cannot be met by the Baltic capital alone.
The experience we have gained over almost a decade in issuing local bonds and the trust earned over time from investors in the Baltics is now helping us in the global markets. Working with investors is one of the most important factors determining a company’s success in the capital markets. By becoming part of them, companies commit to high standards in business transparency, outreach, cooperation with regulators and stock exchanges, and also high standards in business disclosure. All of this adds up to a positive experience. If an investor has had a successful first investment and engagement with a company, he will take less time to decide about reinvesting the next time. Moreover, today no one will allow the sustainability factor to be forgotten, which is increasingly valued by banks and other business partners and investors. If a company does not think green and does not pay attention to environmental, social, and governance (ESG) issues, it will have a more challenging time raising finance. Eleving Group’s work was recognized this year with the Nasdaq Baltic award for Best Investor Relations in the Nasdaq Baltic First North bond listing as a testimony to the importance of these criteria.
In summary, the Baltic bond market has great potential, and both companies and investors are starting to take an interest in it. However, how dynamic this market will be, depends to a large extent on the key drivers of this process, namely issuers, banks, and regulators. It is naive to expect a person to explore all offerings, come, invest his money, and become an investor on his own. The opportunities need to be promoted, explained, and created. Then we will have many issuers with an active secondary bond market and people themselves investing and benefiting from the investment in the form of passive income.