Russia is preparing to raise $1bn in renminbi-denominated sovereign bonds in Moscow next year in a move that would potentially open a new source of foreign funding for its banks and businesses, shut out of capital markets in the US and Europe by sanctions.
The issuance, which would add to the international expansion of China’s currency, could lead to rouble-denominated bonds being issued in China and help promote similar cross-currency issuance by other big emerging markets, eating into the dominant role of the US dollar in global capital markets.
Denis Shulakov, head of capital markets at Gazprombank, which is providing informal assistance in preparing the issue, said the bond would set a benchmark interest rate in renminbi 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 renminbi.”
From China’s perspective, the bond adds to the international reach of the renminbi, which the International Monetary Fund decided last week to include in its elite basket of reserve currencies.
It could also further the development of money-
market instruments to allow more trade and investment between China, Russia and other emerging markets to be conducted in those countries’ currencies, bypassing the need for foreign-exchange contracts typically in dollars.
Russia’s move follows a similar step by the UK, which last year became the first western country to issue renminbi-denominated sovereign debt. China is preparing to issue renminbi-denominated government debt in London. “
“In London the renminbi is seen as an opportunity but in New York it is seen as a threat,” said Jon Vollemaere, chief executive of R5FX, a currency-trading company specialising in emerging markets.
“The best thing to happen recently for the Chinese money market is Washington deciding not to do business with Russia for a while.”
Several Russian banks have issued renminbi- denominated bonds in Hong Kong in the past two years. But next year’s would be the first sovereign issue in Moscow.
Many Russian companies have been barred from issuing foreign-currency bonds in dollars or euros since September 2014, when sanctions were imposed by the US and the EU.
Russian groups issuing renminbi bonds in Moscow could expect to pay higher interest than with dollar- denominated debt. But Mr Shulakov said that even if sanctions were lifted, Russia would still seek additional funding options.
“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.”
