Businesses are eyeing panda bonds – Kommersant FM

Russian companies are eyeing yuan bonds. There is interest in the so-called panda bonds – securities issued in China, and in dim sum – these are bonds from Hong Kong. At least 10 domestic players are exploring the possibility of entering the Chinese debt market, according to a presentation by the Expert RA agency. The trend is confirmed by ACRA analysts.

This instrument can become a replacement for Eurobonds for exporters and importers, co-founder of the fintech company Skyfort Sergei Ishkov explained to Kommersant FM: “Currently the market for panda bonds and, probably, dim sum bonds, and also partly the market for Emirati placements are one of the few that are generally available to Russian issuers outside the Russian Federation.

If they want to borrow at fairly low rates and not in rubles, then there are not many options. Everything has already been placed – both industrial companies and some banks, but so far these are small volumes. But here, rather, it is necessary to consider exactly how much these instruments are really needed by Russian issuers.

Who might be interested in them? Why do people generally issue bonds outside their home jurisdiction? Firstly, the rate is lower, that is, even if you look at the same panda bonds, this is a few percent – 3-4% per annum. Even a good quality issuer issued in Russia must pay 13-15%. It’s just that at the current Central Bank rate, borrowing in Russia is very expensive. And here we get a difference of 10-12 points.

It is clear that there is a currency risk, and it needs to be hedged and spent on it, but, apparently, the overall cost of borrowing is still cheaper. That is, a large number of Russian exporting companies receive foreign currency earnings, and they understand that they can withstand this currency risk. But, as a rule, such issues are of interest to companies that spend money in Russia, that is, their main costs are paid in rubles, and their earnings are in foreign currency.

The yield on panda bonds is actually quite low. If we look at options for Russian investors who, say, are trying to diversify their portfolio and invest in foreign exchange instruments, then the annual interest does not look particularly attractive.”

There are a number of obstacles to placing Russian securities on Chinese exchanges, experts say. For example, Chinese banks will not buy securities of companies that are subject to sanctions, fearing secondary restrictions. In addition, strict regulation of the market by the state makes placement poorly predictable.

But as an opportunity to safely keep part of their money in foreign currency, for Russian companies panda bonds are one of the few remaining instruments, explained Anton Tabakh, chief economist at Expert RA: “Bonds were issued in both Hong Kong and China quite limitedly. It has its own specifics, related both to currency regulation and to the fact that the yuan, although a reserve currency, is also specific.

There are also issues related to conversion and the currency regime, but the market is developing, and, accordingly, some restrictions that seemed impossible against the backdrop of what was available on the Eurobond market become less significant due to the closure of this market. On the one hand, it will not be easy, but, on the other hand, of those markets that remain open, Chinese is one of the most interesting.”

The first Russian issuer to place panda bonds was Rusal. The company did this back in 2017, Vedomosti writes. Also, according to the newspaper, Norilsk Nickel, Rosneft, Segezha Group, Sovcomflot and other large industrialists were included in the yuan bonds.

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Svetlana Belova