In an environment of high interest rates, interest in convertible instruments is only growing. Businesses need instruments that can meet investors' needs for placement of funds and, at the same time, allow companies that have chosen to go public as part of their strategy to attract funding.
Convertible bonds - a hybrid of debt and equity - are becoming such an alternative. They are especially relevant for companies preparing for an IPO.
On June 11, 2025, the Bank of Russia published a report on assessing the actual impact of regulatory requirements for convertible bonds where it assessed the rules for issuing such instruments and came to interesting conclusions.
We have also conducted a study on this topic. Mikhail Malinovsky and Anastasia Puzanova analyzed the prospects of using convertible bonds in the Russian market as an effective tool for raising capital in a high key rate environment.
Conditions for the formation of a new market
In 2024, the total volume of public offerings (IPOs) in the Russian market amounted to 102.1 billion rubles (compared to 2023, the volume of attracted investments decreased by 20%, while the number of IPOs increased by 58%). The average volume of share placements in 2024 amounted to about 6 billion rubles (which corresponds to about 10% free-float). The last two transactions on the Moscow Exchange took place in October 2024 (PJSC Ozon Pharmaceuticals, ticker OZPH and PJSC Lambumiz, ticker LMBZ, the highest market valuation by multiples was the biopharmaceutical company Promomed, ticker PRMD) and in 2025 there was only one transaction - PJSC Jetland Holding (ticker JETL) in the amount of 480 million rubles on the St. Petersburg Stock Exchange.
At the same time, at the end of last year, the primary bond market renewed the record in the volume of corporate placements, even despite the systematic tightening of monetary policy by the Bank of Russia: corporate issuers attracted about 5.5 trillion rubles (excluding replacement bonds), which is 21% higher than the result of 2023. In the first quarter of 2025, corporate issuers raised RUB 1.6 trillion in public debt (against RUB 0.9 trillion a year earlier).
Thus, against the backdrop of growing demand among all participants, the stock market industry is facing the task of creating instruments that will be able to meet investors' needs for placement of funds and, at the same time, allow companies that have adopted the vector of publicity as part of their strategy to attract funding. Under these conditions, the convertible bond market began to emerge in Russia, at the first stage as a product strictly for qualified investors.
Application of convertible bonds in Russian and international practice
Convertible bonds are a hybrid product combining the characteristics of debt and equity instruments. The instrument allows a business to raise debt, which can then be converted into shares in the company. This allows for flexible capital structure management and optimal timing for attracting new investors.
The first ones were in one way or another encountered in Russia in the last 10-15 years as contingency convertible bonds (CoCo) - an instrument of bank risk absorption, where conversion takes place automatically when the level of equity capital adequacy falls. Such securities were issued in the name of the bank (“balance sheet”) or, in the case of Eurobonds, through special purpose vehicles (SPVs) abroad. Their terms and conditions had to comply with the Basel regulation, which was validated by the Central Bank prior to placement.
The second ones in the Russian field and on the basis of Russian law appeared on the market during the last six months. Let us dwell on corporate convertible bonds in more detail based on our practical experience. Prior to that, Russian companies placed such instruments only abroad through foreign SPVs (not taking into account several examples of balance sheet private placements used as instruments of corporate control: such instruments were never offered to the market).
Today, the development of the product is facilitated by the redomiciliation to Russia of companies that have previously placed such instruments (MPAOs), as well as the development of the Russian SPV market (there are five types of special purpose vehicles in Russian law, but the most popular today is the specialized financial company - SFO).
In essence, corporate convertible bonds offer a variation of their application for companies at different stages of development: (1) convertible bonds for shares in an already traded company and (2) convertible bonds as part of a pre-IPO.
The first type (conversion into shares of a publicly traded company) is a good alternative to an SPO, which always results in pressure on the stock price. Pricing in such deals is quite transparent and is based on the dynamics of the share price for the past period (as a rule, half a year). An important element of such deals is the depth of the share market: future conversion should not put significant pressure on capitalization. For this purpose, the documentation should provide the issuer with the right to close the deal both by delivery of shares and cash settlement of the deal in case of market compression.
An important caveat: in Russian law, convertible bonds are understood as securities issued on behalf of a company (balance sheet convertible bonds). In international practice, convertible bonds are most often issued from the balance sheet of an SPV: it is through this instrument that all convertible Eurobonds of Russian corporate borrowers were placed. LECAP has prepared a study containing the most significant examples and statistics.
Convertible bonds can be divided into (1) bank bonds and (2) corporate bonds.
Nebius Group N.V. (separated in 2023 from Yandex, specializing in cloud technologies and AI-infrastructure), in early June 2025, announced a successful placement of $1 billion in convertible bonds. The placement took place in two tranches and was one of the largest debuts in the international debt market in recent years. The bonds will be converted into equity based on the original principal amount of the debt: they are convertible at $51.45 per share, which implies a premium of more than 40% to the share price at the time of the offering. By the maturity date, the accreted conversion price applies - the effective price will increase to $61.74 and $64.31, respectively. The paper stipulates conditions of growth of face value of the bonds before the possible maturity date. The terms of the issue provide a number of solutions protecting shareholder value from dilution, which was quickly appreciated by the market and the company's share price showed significant growth (+50% within a week after the announcement of the convertible debt offering).
The second type (under pre-IPO) is an alternative to direct sale of shares at pre-IPO or formation of specialized closed-end mutual funds. For the first time such Russian bonds (issued for shares of foreign-registered holding companies) were offered back in 2020, when companies were considering placements on foreign markets.
Issuing convertible bonds on a pre-IPO basis allows a company to avoid sharing corporate control with investors at an early stage of development and still receive a significant discount to the financing rate. The complexity of such deals is in pricing, when the value of a non-public company is based on a wide range of assumptions. At the same time, investors' risks are mitigated through the construction of a debt covenant package: in particular, specifying the period during which the IPO will be held or an increased coupon will be paid. Verification of the issuing company, if the deal is properly structured, is close to the amount required for an IPO.
Use of convertible bonds at pre-IPO stage
Convertible bonds at the pre-IPO stage are of the greatest practical interest. Although this market is just beginning to develop in Russia, it is already demonstrating significant potential. BCS Global Markets notes the growing interest of companies in hybrid funding instruments at the stages of business scaling.
Although there is some fragmentary information about some private placements, it is not possible to provide a public example of the use of convertible corporate bonds as a pre-IPO instrument from Russian practice to date. However, the recent success of Telegram, which raised $1.7bn through convertible bonds to develop its products, emphasizes the potential of this instrument.
We see opportunities to use a new instrument for the market primarily by those companies that already have public debt on the Russian market. While the largest issuers may not be interested in such an instrument due to insufficient market depth, it is a good product for growing companies where investors see the potential to unlock shareholder value in the long term. Experience in placement of corporate bonds at the first stages of development of convertible bonds will be an absolute advantage. The presence of a company's credit rating and public debt history, among other things, will contribute to the risk assessment of convertible bond issuers.
But, in addition, the flexible structure of the transaction opens up this tool for many Russian companies and, in addition to attracting financing, allows them to firmly indicate their intentions to conduct an IPO. A convertible pre-IPO bond gives better economic efficiency to the issuing company and a lower debt burden compared to a classic corporate bond, as it includes an option on shares. At the same time, the instrument represents the issuance of shares in the future at a premium to the current price. On the way to an IPO, a convertible bond also allows the issuer to diversify its investor base away from traditional equity investors.
Buying shares in a company through a convertible pre-IPO bond allows the investor to participate in capital growth on conversion and have a guaranteed allocation in the company's IPO, or limit the risk of losing the investment if the right covenant package is applied in the transaction.
In lieu of conclusions: the Russian convertible bond market is just beginning to develop, but this instrument already has the potential to become an important part of corporate financial strategy. The Bank of Russia's research also points out that investors are most interested in bonds convertible into company shares (pre-IPO convertible bonds) primarily to regulate the risk-return parameter of the portfolio. At the same time, competent use of this instrument will allow businesses to raise capital and strengthen their market positions, while investors will be able to receive a predictable income.