Roberts Idelsons: wealthy people prefer to put their money into bonds rather than bitcoin

Latvian investment banker Roberts Idelsons says that although the Riga Stock Exchange has fallen behind its neighbors, several new players are expected to join next year, and a new opportunity could soon open up for Air Baltic as well.

On a positive note, he points out that capital markets have discovered even such traditional businesses as pig farmers, but there is still plenty of room for growth. While several IPOs can be expected next year, as an organizer of offerings, he does not believe that the bond market will be able to repeat this year’s volume next year.

In an interview given at a capital markets conference in Riga, Roberts Idelsons, CEO of Signet Bank, one of the most active bond organizers in the Baltics, explained when we can expect the ice to break on the Latvian stock market and what investments their wealthy clients prefer.

When it comes to the Baltic capital markets, where do you see the most room for growth at the moment?

Firstly, Latvia has historically lagged behind Estonia and Lithuania, as its neighbors’ markets are larger. However, in recent years, Latvia has begun to catch up, mainly due to increased activity in local corporate bond issues.

At the same time, we have had only two IPOs in Latvia in the last 4-5 years, both of which were consumer loan companies (Eleving Group and DelfinGroup – ed.). This is an area where we will definitely see significant growth in the coming years, which will help us catch up a little with Estonia and Lithuania.

Looking at the Baltics as a whole, I predict even faster growth in the bond market. We will see more issues and activity in the secondary market as investors become more aware. Those who do not want to speculate with shares but are looking for regular income are increasingly investing in local bonds.

We also heard today’s discussion among finance ministers (at the capital markets conference in Riga – ed.) on taxation – it is in the interest of all countries to create a tax regime that supports investment. This is an additional element that encourages people to invest.

When you talk about taxes, are you referring to investment accounts?

Yes. Latvia has investment accounts, Lithuania introduced them this year, and Estonia has had them for some time now. However, our Ministry of Finance has ideas for additional incentives for investing in capital markets. I am optimistic – although our market capitalization to GDP ratio is low, we will catch up with other European countries.

Air Baltic’s IPO should have already taken place, but it was postponed again in the spring. Will it happen in the coming years?

That is a difficult question. This year, they actually had a good window of opportunity: the markets were favorable, Air Baltic’s results were good, and Lufthansa’s arrival as a minority shareholder supported the strategy. The problem, however, was that they lacked a CEO, which made the IPO impossible.

I believe that next year will bring new opportunities for Air Baltic to go public, and hopefully the markets will be favorable. Hopefully, the team will be able to implement their strategy. They also have a very capable new CEO (Erno Hildén from Finland took over as head of the airline on December 1). It is likely that Air Baltic will go public in 2026. They need an IPO not because of political desire, but because of the implementation of a real strategy. Without it, they cannot carry out their plans.

Next year, one or two smaller state-owned or municipal companies are expected to go public, but I would like to see the Latvian government finally take the plunge and decide to list large companies such as Latvenergo on the stock exchange. Public opinion polls show that people support the listing of state-owned companies and want to invest in large, well-known companies. This is logical, as they are better known. I hope that next year we will see decisions in this direction.

Which other companies would you like to see on the stock exchange?

There are companies in several sectors that are large enough and are considering an IPO. In the private sector, we will definitely see several IPOs in various fields over the next five years: the food industry, the financial sector, and perhaps real estate. We see this when communicating with many companies. An IPO is a big decision for a company, one that is usually made only once. The timing must be right, which should bring positive results for both the company and new investors.

Signet Bank seems to be focusing more on organizing bond offerings than IPOs. Is this the market’s choice or yours?

It is the market’s choice. Globally, the volume of bond markets is significantly larger than that of stock markets. Bond issuance is also a so-called recurring business – old bonds are redeemed and new ones are issued. This ensures continuous activity. Every investment bank, except for a few global giants, deals more with bonds simply because of the size of the market.

How would you describe the projects currently in the pipeline?

In December, we have three bond issues in the pipeline: two existing issuers and one new one – a local pig farming company. It is a good sign that traditional sectors such as agriculture are also seeking access to capital markets.

This year has been very good for us – we have done 2.5-3 times more transactions than before, totaling approximately 250-300 million euros. For next year, I forecast around 20 new issues with a total volume of 150-200 million euros, although new entrants may be added during the year. For example, we did not forecast such a volume for this year.

How many IPOs do you forecast for next year in Riga and the Baltic States as a whole?

I believe there will be 2-3 IPOs in Riga. Hopefully, there will be more than ten in the Baltic States as a whole, although I am less familiar with the plans in Estonia and Lithuania.

Is there a risk that global events could dampen this outcome?

The geopolitical situation could change, of course, but I don’t think that will happen next year. To be honest, I don’t believe that peace will come to Ukraine next year, and even if it did, it would be positive for the region’s reputation.

One risk factor is the US technology sector, the so-called Magnificent 7. Their valuations are very high, and if this bubble bursts, it will affect all stock markets, including ours. However, even this should not detract from the fact that we will see a couple of IPOs in Latvia next year.

Why isn’t Signet Bank listed on the stock exchange?

That’s a question for the future. Over the last four years, we have tripled our equity capital by reinvesting profits and making two targeted offerings. We currently see great potential in growing our lending business in addition to investment banking, as demand is growing and interest rates are falling. The market is very good.

Going public is a matter of time. We will not do it just for the sake of it, but when we need additional capital on a large scale for further growth. So far, private capital has been sufficient.

You have many wealthy clients among your customers, whose assets you help manage. Where do they invest?

Most of our clients invest in domestic bonds. They are not speculators, but are looking for a stable return. We do not offer a platform for trading in Bitcoin or other risky assets.

We mainly offer them bonds with yields ranging from 4% (very conservative, e.g., water companies) to 12% (real estate bridge financing or consumer loans). In addition, in May we launched a bond fund, which is the only fund of its kind that invests exclusively in Baltic bonds. It is ideal for smaller investors who want a diversified portfolio, which is difficult to achieve when buying individual bonds.

Finally: will the artificial intelligence bubble burst or not?

Artificial intelligence is here to stay, and society stands to gain a lot from it. However, I think that there is currently overinvestment not in AI itself, but in the infrastructure that supports it (data centers, etc.), with half a trillion euros going towards this next year. As competition is fierce, it is inevitable that there will be both winners and losers. Of course, some of the money will be lost, and some prices will definitely go down.

Source: Ärileht – Delfi; Priit Pokk