Rosneft placed a record bond issue in yuan

“Rosneft” placed the second issue of bonds in yuan, the rate of the first coupon of 10-year securities with an offer in a year was 3.5% per annum, the placement volume was 15 billion yuan, a source familiar with the results of the placements told Vedomosti. According to him, the collection of applications was held on March 15. The placement is scheduled for March 20. The organizers of the issue are BC “Region” and RRDB. A source close to one of the organizers confirmed the information about the placement parameters. A spokesman for Rosneft declined to comment.

The placement was the largest among the issues of corporate bonds on the Russian market in its entire history, notes a senior analyst “BCS investment world” Ronald Smith. The previous record also belongs to Rosneft: the debut issue of bonds in the amount of 15 billion yuan (128.5 billion rubles at the exchange rate of the Central Bank on the day of placement against 163.95 billion rubles of the current placement) “Rosneft” posted on September 15 last year. True, the rate was lower – 3.05% per annum.

“Since the end of last year, there has been a tendency for a general increase in interest rates on borrowings in yuan in the domestic market,” explains Sergey Suverov, investment strategist at Arikapital Management Company. In December 2022nornickel” (a company comparable to Rosneft in terms of credit rating) issued bonds in yuan with a coupon rate of 3.95% per annum. Another indicator of a general increase in domestic interest rates in yuan may be the instrument of the Central Bank on swap transactions for the sale of yuan for rubles, the rate for which is set at the level of O/N SHIBOR (Overnight Shanghai Interbank Offered Rate) + 2.5 percentage points or 4, 33% per annum (as of March 10, 2023). The interest rate on loans from the People’s Bank of China for the year is 3.65% per annum.

Now the local bond market in yuan is formed by 11 Russian companies. Rosneft accounts for 40% of the volume of placements, taking into account the new issue. Bonds in yuan appeared on the Moscow Exchange in July 2022. The first bonds in Chinese currency were placed by UC Rusal. Since August 2022, Russian issuers have issued bonds in yuan on the Moscow Exchange in the amount of about 74 billion yuan. The peak placements were in September and December last year – 17 billion yuan, respectively. Since the beginning of this year, there have been no issues of bonds in yuan on the local market.

According to Suverov, the high demand for Rosneft bonds and the relatively low coupon rate are due to the high quality of the borrower: the company is the main supplier of oil to China, therefore it is more than provided with a revenue stream sufficient to fulfill its obligations in yuan. “Current long-term contracts completely exclude any currency risks for Rosneft,” the expert believes.

At the end of 2021, the share of Rosneft’s revenue from the sale of oil and oil products in the Asian direction was more than 27%. Most of this share came from deliveries to China. According to analysts, this figure will increase by the end of 2022.

According to the company, at the beginning of 2022, Rosneft’s total supplies to China since 2005 amounted to 442 million tons of oil. By now, their total volume can be estimated at about 500 million tons, the company representative explained. At the beginning of last year, Rosneft agreed to supply 100 million tons of oil to Chinese CNPC through Kazakhstan over ten years.

Alexei Kovalev, an analyst at FG Finam, considers Rosneft bonds in yuan to be attractive to investors. He notes that the debut issue of such bonds by Rosneft in the absence of OFZs in yuan is “the highest-rated paper in the segment.” “In the absence of a sovereign borrower, Rosneft acts, in fact, as a quasi-sovereign and a benchmark for the entire market,” agrees Suverov.

But despite the rather active formation of the yuan bonds segment, Kovalev continues, its exchange liquidity still leaves much to be desired. “Really liquid securities – at most half,” – he said. Rosneft bonds, adds Kovalev, are among the leaders in terms of average daily turnover and the number of transactions on the Moscow Exchange in the yuan segment.

The current yield on Rosneft’s yuan bond issue, which was placed in September, is about 3.6%,” says a company spokesman. At the same time, this indicator is significantly lower than the average cost of the company’s financial debt: according to the financial statements of Rosneft, the average cost of the company’s financial debt for the fourth quarter of 2021 was about 6%.

Sergey Grishunin, managing director of the NRA rating service, notes that for Russian exporters actively supplying their products to China, issuing yuan-denominated debt is a “sensible risk management strategy.” “This allows you to attract additional financing without increasing foreign exchange risks,” he explains.

Stock market expertBCS The World of Investments” Yevgeny Mironyuk notes that now the options for choosing instruments with higher than inflation returns and moderate risk for investors have “noticeably narrowed down”. “The yuan is one of the few alternatives to “unfriendly” currencies that are liquid and available for transactions in most countries,” he says. According to Mironyuk, yuan bonds are beneficial for Russian companies because of the low cost of borrowing relative to the dollar and the euro (the cost of borrowing in dollars and euros, according to him, is 5-8% per annum), and also because of the possibility of converting into “ the currency needed to finance current activities.