CORRECTION - Russian issuers eye Panda bonds
Russian corporates, which have turned to China's renminbi as an alternative funding currency after being hit by western sanctions, are looking at the Panda bond market to finance their growing Chinese imports.
Several Russian companies have had talks with Chinese banks in the past few months about issuing Panda bonds, according to three sources. Aluminium producer Rusal, the only Russian company to have previously tapped the Panda market, and Gazprombank are among them. The Russian Federation is also looking to sell renminbi-denominated treasury bonds in China’s onshore market.
The discussions are preliminary and no deals are likely any time soon, said bankers. Chinese banks are cautious about dealing with Russian names due to the risk of falling foul of western sanctions, and conservative with new issuers in general.
Since western nations imposed sanctions on Russia for its invasion of Ukraine, Chinese banks have stepped back from dealing with Russian companies. Reuters reported last month that big Chinese banks now take months rather than days to clear payments from Russia, leading some exporters to turn to currency brokers and underground channels to finance transactions.
In February, the US, the UK and the European Union included some Chinese companies in a new round of sanctions targeting firms for supporting Russia.
Against that backdrop, the frequent meetings between Chinese president Xi Jinping and his Russian counterpart Vladimir Putin have fuelled Russian interest in the Panda bond market.
During Putin's visit to China on May 16–17, the two leaders signed a joint statement on a “new era” of partnership and also said they planned to further increase the use of their currencies in bilateral trades.
Russia is pivoting towards the renminbi after being cut off from the global banking payment system following its invasion of Ukraine in 2022. In January, the renminbi accounted for 40.8% of the country's export settlements and 38.5% of its import settlements, according to Bank of Russia data.
Russian companies have been actively issuing renminbi-denominated bonds in Russia in the past year. The outstanding deal volume almost doubled in 2023, jumping from Rbs600bn (US$6.6bn) to Rbs1.1trn. Most deals were sold in the first quarter, after which supply slowed down, according to a separate report from Russia’s central bank. Yields on these new issues surged from around 3.5% in September 2022 to more than 5.5% by the end of 2023 and more bonds were sold with a tenor less than one year since the third quarter of last year.
The central bank said the slowing pace of activity was due to limited renminbi banking liquidity as a result of the weakening rouble and importers’ increased demands for renminbi. Banks are the main investors for these bonds.
A Russia-based analyst said the limited liquidity pushed companies to seek other renminbi funding sources outside the country, which makes Panda bonds a natural choice.
“Russian issuers may be seeking for a broader investor base and also to maintain their presence in capital markets outside Russia,” said the analyst.
The pressure to expand funding sources made Russian companies change their previous reluctant attitude towards Panda bonds. Reuters reported in 2017 that Russia’s ministry of finance pulled its renminbi bond plan at the last minute because China required it to issue in Panda format while the MoF wanted to sell to Chinese investors in Moscow and said Panda bonds are “not really interesting and efficient”.
Rusal is the only Russian company to have issued a Panda bond so far, selling a Rmb500m 5.5% three-year deal in 2017, according to LSEG data.