RMB bond rates rise

After a long break, the issuer re-entered the debt market with an offer of yuan bonds. Metalloinvest bonds in Chinese currency were in demand, which made it possible to increase the placement volume. However, the yield has increased significantly compared to last year, reaching 5.75% per annum. At the same time, market participants do not expect an increase in activity in the segment due to the shortage of yuan liquidity.

On October 12, Metalloinvest closed the order book for placing a new issue of bonds in yuan. Investors were offered 2.5-year securities. Due to high demand, the placement volume was increased from CNY 750 million to CNY 1 billion, and the coupon rate was reduced to 5.75% per annum. A year ago, the company placed three issues of yuan bonds worth CNY 3 billion. However, the situation was clearly better then – the yield on comparable and even longer-term securities was 2–2.5 percentage points lower.

Since the beginning of April, not a single issue of bonds in Chinese currency has been placed in Russia. According to the chief analyst of debt markets at BC Region, Alexander Ermak, the pause taken by the companies is associated with a certain shortage of liquidity in yuan. In the context of the transition of the Russian Federation in foreign economic activity to the currencies of friendly countries, and primarily the yuan, its role in imports has grown the most. According to the Central Bank, in August the share of the Chinese currency in exports was 29%, while in imports it was almost 38%.

The shortage of placements is also facilitated by a decrease in interest in debt securities in Chinese currency on the part of investors against the backdrop of active growth in the market for substitute bonds. “Why buy yuan bonds at 5% per annum when there is an issue in dollars at 7% per annum,” notes Arikapital CEO Alexey Tretyakov.

All this led to an increase in the yield of yuan bonds. “Currently, two-year bonds in yuan of first-tier companies are traded with a yield of 4.8–5.3% per annum, four-year bonds with a yield of 5.6–5.8% per annum,” clarifies Alexander Ermak. The yuan yields that have prevailed on the Russian market, as noted by Artem Mayorov, director of the asset management department of Ingosstrakh-Investments Management Company, are already more attractive than the instruments of Chinese issuers, which may contribute to increased interest in them from investors.

In the absence of a competitive advantage in comparison with substitute bonds, the main buyers of yuan bonds may be large institutional investors who have “full limits” on other currencies, says Maxim Chernega, head of the DCM department of the corporate finance department at Tsifra Broker. First of all, these include banks that actively attract yuan from individuals for deposits at lower rates (mainly 1.5–3% per annum). “High interest margins attract investors, but uncertainty in the management of long-term funding and the low volume of available short-term deposits neutralize a significant part of investment interest,” notes Arseny Avtukhov, an analyst at Sovcombank’s investment analysis department.

Market participants are not expecting new placements of yuan bonds until the liquidity situation improves.

“Both swap lines with the Bank of Russia and an increase in the volume of yuan in the banking system could solve the problem,” says Mr. Avtukhov. The release of the Ministry of Finance with yuan bonds could support the market, as this would simplify the pricing of such instruments. However, such an event, according to Mr. Avtukhov, is unlikely before the end of the year, including due to the reduction of the budget deficit.

Vitaly Gaidaev