Updated August 11, 2008

In 1H 2008 volume of bill debts in Russia has almost doubled as compared to analogical period of the last year. Companies that issued bills to settle with bonds owners provided this growth.

Such operations number growth at the debt market increases risks both for issuers and investors, as experts warn.

According to data of Cbonds information agency, in 1H 2008 the volume of the floated placed public bill programs

totaled RUR 26,4 billion. This figure exceeds the volume of bill placements for analogical period last year by 73%, and it is the record growth since 2005. Within previous half-years, the bill market has been growing by less than 40%.

Banks that earlier have been the key players at the bill market continue to give away positions to investment companies.

In the Central Bank opinion, bill drawers are rather risky borrowers in terms of financial instruments' non-transparency. Therefore, a regulator, by means of normative acts, impedes banks to purchase bills actively.

"The Central Banks requirements do not cover investment companies, and that is why they take leading positions within last three years", as marks head of Zenit Bank organization department for debt funding Aleksey Balashov.

The bill market considerable growth is a result of an active application of such loans to run bond issues' offers. "There is a great number of companies and banks among bill drawers that have been running their bonds offers within January-June period", says Region Company top-analyst of debt markets Alexander Ermak.

"In this case, bills issue acts as an analogue of bank loan receiving", marks DWS Investments managing director Dmitry Dudkin.

According to Veles Capital Company department head for handling with bills Evgeny Shilenkov, a range of companies simply lacked other sources of funding.

Since mid-2007 companies and banks were facing sharp liquidity shortage.

As investors needed some facilities, they used offers, providing issuers with 60-80% on average from volume of b

onds issues. Thus, from May to August, there were seven cases of technical defaults at the debt market, and one of them turned in

to the real one.

Experts are sure that it is quite dangerous to attract facilities

to settle with bonds owners through bills issues. "If there is bonds default, it is unclear, how these bills will be repaid", is puzzled Federal Financial Markets Service (FFMS) expert Tatyana Medvedeva. According to the Savings Bank board chairman Bella Zlatkis, an issuer lent by means of bills cannot calculate liquidity for long term, and "it is very dangerous to shift in such situation". Mrs. Medvedeva warns, since the information about bills is not exposed, investors undertake all risks wholly.

"Bill as an instrument permits to solve the short-term refunding problem, but it does not solve the problem of this instrument quality", says Kapital Managing Company chief executive Vadim Soskov.

According to him, a bill did not pass the real market expertise.

"Bill is a risky instrument and its issue is not registered at all: bills are stolen, issued with deficiency in forms, are not repaid in time, and these securities are often lost", has earlier defined a bill term FFMS department head for regulation and control over collective investments Alexander Bezkrovny.

"If more analogical securities appear in a portfolio or an issuer tries to apply bill programs, it means the market investors will not trust such issuer", Mr. Soskov sums up.