Russia paves way for renminbi-denominated bonds

Russia plans to raise US$1bn in renminbi (RMB)-denominated sovereign bonds in Moscow next year, reports the Financial Times.

The business daily said that the move promised to open a new source of foreign funding for Russian banks and businesses, that have been shut out of capital markets in the US and Europe. Many Russian companies have been unable to issue foreign currency bonds in dollars or euros since sanctions were imposed by the US and the EU in September 2014, in response to Russia’s annexation of Crimea earlier that year

The FT noted that issuance would add to the international expansion of the Chinese currency could lead to rouble (RUB)-denominated bonds being issued in China and would help promote similar cross-currency issuance by other big emerging markets (Ems), undermining the dominant role of the US dollar (USD) in global capital markets.

Denis Shulakov, head of capital markets at Gazprombank, which is providing informal assistance in preparing the issue, told the paper that the bond would set a benchmark interest rate in RMB for the Russian Federation and, subsequently, for corporate issuers.

“That’s the first objective,” he said. “The second is to diversify the investor base [for Russian borrowers] and bring in a new source of liquidity that comes with the internationalisation of the RMB.”

Although Russian companies issuing RMB-denominated bonds in Moscow would probably pay a higher rate of interest than would be the case with dollar-denominated debt, Shulakov said that Russia would still seek new funding options even if the sanctions were lifted.

“Memories for investors fade quickly but for borrowers they do not,” he said. “Yesterday you could get picked up by sanctions for one reason, tomorrow for another. You need to be able to access capital where you can control the game.”

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