The yuan reached the “Pole” – Newspaper Kommersant No. 154 (7355) of 08/24/2022

The second placement of bonds of a Russian issuer in the history of the domestic debt market, denominated in yuan, was held by Polyus. It issued five-year notes for 4.5 billion yuan at 3.8%. The results of the placement even surpassed the July debut of Rusal. Market participants expect further growth in activity in the sector of such bonds, primarily from large export-oriented companies.

A month after the debut placement of bonds in yuan, Rusal (see “Kommersant” dated July 28), the collection of applications for bonds in Chinese currency was carried out by Polyus: on August 23, investors were offered five-year bonds totaling up to 3.5 billion yuan (30.5 billion rubles). The organizers were Gazprombank and Zenit Bank, Dom.RF Bank, BC Region, Rosselkhozbank, Tinkoff and BCS Global Markets.

Although these securities are longer (Rusal’s bonds had an offer in two years), demand also exceeded supply, which made it possible not only to reduce the rate, but also to increase the volume of placement. The initial coupon target, set at the level of up to 4.2% per annum, decreased several times during the collection of applications and, as a result, amounted to 3.8% per annum. The placement volume was increased to 4.6 billion yuan (40.15 billion rubles).

This is more than the total volume of the two issues of Rusal placed on July 27 and 28 (each 2 billion yuan, 18 billion rubles). Gazprombank said that the Polyus placement took place with the active participation of Russian retailers. According to Dmitry Monastyrshin, chief analyst at PSB, the yield on Polyus bonds implies a premium to the yield on China’s five-year government bonds in yuan in the amount of 140 bp. Rusal placed bonds in yuan with a coupon rate of 3.9% for two years.

Both companies borrowed on terms that were noticeably better than they could have expected if they had placed securities on a foreign market. According to Aleksey Tretyakov, General Director of Arikacapital, yuan issues of such reliable banks as Goldman Sachs or HSBC are traded on the global market with a yield of 3.8-4.2% per annum.

“Even without taking into account the increased risks, the fair yield on the issue of Polyus is not lower than 5.5% per annum,” notes Mr. Tretyakov.

This anomaly is associated with the active withdrawal of Russian investors from dollars and euros to yuan and the shortage of investment products in this currency. Now yuan can be placed on bank deposits, the rates on which rarely exceed 1% per annum, or in bonds, the volume of which is only 4 billion rubles.

“The yuan is, in fact, the only acceptable alternative for the currencies of unfriendly countries, but there are very few investment instruments in yuan, especially with low risk, on the Russian market,” says Evgeny Vorobyov, head of the credit analysis department of Ingosstrakh-Investments Management Company.

Other companies are also showing interest in yuan-denominated bond issues. “A number of corporate borrowers (completely from different sectors) are thinking or working on such deals at the moment,” says Denis Leonov, head of the debt capital markets department at BCS Global Markets. According to Dmitry Monastyrshin, first of all, we should expect proposals from large exporters with foreign exchange earnings.

Over time, companies may replace dollar and euro borrowing with yuan bonds. “Issues in the yuan are perceived by both issuers and many investors as a new form of Eurobonds, so in the long term this instrument will gradually occupy the share previously occupied by Eurobonds,” notes Denis Leonov.

With the development of the local market, Evgeny Vorobyov believes, a scenario is possible in which Chinese issuers will enter the Russian debt market with the offer of their bonds, as a diversification of the investor base. In 2020, the Ministries of Finance of Belarus and Kazakhstan, as well as the Belarusian retailer Evrotorg, entered the Russian market.

Vitaly Gaidaev