The Dependence of Russian Businesses on Bank Loans Continues to Grow

There are alternative ways to secure funds for development: government-supported funds, private investors, and securities trading, such as bonds. However, not all businesses have access to these due to various restrictions. Here's why and how companies trade bonds, using our experience as an example.

About Our Company
Oil Resource Group (ORG) was founded in 2014. We currently trade oil, oil products, petrochemicals, and grain. Additionally, we are developing a commodities marketplace, ORG-Market, and a mobile app, Fuel.

We purchase fuel in bulk, enabling us to work with clients without requiring prepayment or deferred payments. To finance these purchases, we rely on overdrafts (short-term loans), which we repay with interest within a month.

However, banks often view traders with caution due to the high risk of borrower bankruptcy, setting strict and unfavorable credit terms. Seeking more flexible financing options, we decided to enter the bond market.

Why Bonds Are Attractive
A bond is a financial security confirming that a company (the issuer) has borrowed money from an investor and promises to return it with interest by a specific date.

Fixed Term: Bonds are issued for a set period during which the issuer pays the bondholder periodic interest (coupon payments). At the end of the term, the principal amount is repaid.
Example: At the time of writing, the face value of one "Sber" bond is 1,000 rubles. Purchasing one bond effectively lends this amount to the issuer. With a coupon payment of 37.40 rubles, the investor periodically receives this amount, with repayment of the principal at the bond’s maturity.
Benefits of Bonds for Businesses:
No Mandatory Collateral: Unlike bank loans, bonds do not require collateral.
Diverse Investor Base: Unlike bank loans with a single creditor, bonds can attract hundreds of thousands of investors, especially if the face value is affordable to individuals.
No Strict Bank Conditions: For example, overdraft loans often require maintaining a turnover twice the loan amount and meeting specific financial ratios. Noncompliance can result in penalties.
Longer Loan Terms: Bond terms are determined by the issuer, typically around three years, allowing for better long-term cash flow management. Overdrafts, in contrast, are often limited to 60 days.
Which Companies Should Consider Bond Trading
To issue bonds, companies need:

Stable Revenue: A consistent and sustainable income stream over the past several years.
Transparent Business Practices: Publicly available information about the company’s ownership and structure.
Growth Potential: Evidence of past success and realistic development plans.
Good Reputation: No unresolved legal disputes, unfulfilled contracts, or public scandals.
Formal Requirements for Entering the Market:
Revenue exceeding 150 million rubles.
Financial stability over recent years.
No negative credit history.
Absence of ongoing lawsuits that could impact business operations.
Positive assessment of the company’s investment attractiveness based on financial metrics like NPV, IRR, and ROI.
Why Oil Resource Group Is Issuing Bonds
We are expanding our marketplace for oil products and other IT solutions. To illustrate our growth:

Revenue rose from 3.4 billion rubles in 2017 to 12.5 billion rubles in 2020.
Fuel sales increased from 76,700 tons in 2017 to 237,500 tons in 2020.
Our marketplace launched in December 2020, with platform users growing by 163% by the end of 2021.
Bond Issuance Details:
Total issuance: 200 million rubles.
Bond price: 1,000 rubles each.
Term: 3 years (1,080 days).
Coupon rate: Central Bank key rate + 3%.
Interest payments: Every 31 days (36 payments total).
Future Plans
In 2022, we began exploring agriculture, focusing on grain cultivation and processing in the Omsk region.

Goals:
Develop 500,000 hectares of land.
Implement advanced grain processing techniques to produce:
Biopolymers and bioplastics.
Bioethanol fuel.
Starches for various industries.
Glucose-fructose syrups for food production.
Amino acids for livestock feed.
Build plants for biodegradable plastics and nitrogen fertilizers.
This approach aims to replace raw material exports with value-added products and boost import substitution in Russia, creating jobs and driving regional economic growth.

How We Started Bond Trading
We understood the process of entering the bond market would take time—typically 6 to 12 months. Here’s how we prepared:

Restructured the Company Group: Created a management company to issue bonds, with the entire group guaranteeing obligations.
Obtained a Credit Rating: Received a RuB+ rating from Expert RA, a moderate rating but strong within the oil trading sector.
Conducted Audits: Published consolidated financial statements.
Engaged a Placement Organizer: This broker advised on documentation, conducted a business analysis, and forecasted our performance during the bond term.
Registered on the St. Petersburg Exchange: This enabled us to attract more private investors.
Our move into bonds is designed to triple or quadruple turnover and secure long-term financing for business development.


Translated using ChatGPT