Yuan will figure out for four – Newspaper Kommersant No. 235 (7436) of 12/19/2022
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In the new week, four issuers will hold placements of yuan bonds at once. Along with Rusal, which already has a number of issues in circulation, bonds in Chinese currency will be offered for the first time by MMC Norilsk Nickel, Alfa-Bank and MFC Bystrodengi. The mass exit of issuers may require them to additional premium in the fight for investors.
MMC Norilsk Nickel and Alfa-Bank will hold debut issues of bonds denominated in yuan on December 19. Norilsk Nickel will collect bids for three-year bonds worth CNY 4 billion, the rate will be pegged to the value of the annual Loan Prime Rate plus a premium of no more than 0.2%. The bank will offer investors two-year securities of no more than 2 billion CNY at 4-4.1% per annum. On Tuesday, December 20, another debutant, Bystrodengi MFC, will collect a book on paper for a period of 3.5 years and a volume of 17.5 million CNY with a yield of 8% per annum. On Thursday, Rusal will issue exchange-traded yuan bonds, which will offer investors three-year bonds worth CNY 1 billion with a coupon of 4.1-4.25% per annum.
Issuers have not entered the market for yuan so intensively since July, when such securities appeared for the first time. Since then, RMB bonds have been placed by Rusal, Polyus, HC Metalloinvest, Rosneft, Segezha Group, EDB and Yuzhuralzoloto. There were a total of ten placements of classic bonds totaling CNY 34.7 billion, with three such placements in November. At the same time, activity is typical for all echelons and segments of the Russian bond market, and not just for placements in yuan,” says Denis Leonov, head of the debt capital markets department at BCS Global Markets.
The expert emphasizes the interest in bonds in yuan not only for companies in the real sector, but also for financial market participants. “Against the background of the de-dollarization of the Russian economy and the transition of foreign economic activity to the yuan, banks need liabilities in this currency to finance companies in the real sector by lending them or buying their bonds denominated in Chinese currency,” said Alexei Tretyakov, head of Arikacapital. “We see the growing demand of corporate clients for lending in yuan and want to support it with longer liabilities,” Alfa-Bank representative explained the interest in new securities. In addition, the bank sees the interest of individual clients in products denominated in yuan – deposits and savings accounts, and bonds will become a new solution.
In the case of IFC Bystrodengi, the funds will be converted into rubles and used for business development, said Andrey Kleymenov, CEO of Eqvanta Group. “We will hedge the currency risk, so this debt for the company will be in yuan only formally,” he said. This is nothing more than an attempt to borrow in a currency with a lower nominal rate, analysts say.
According to Alexei Bulgakov, head of the debt market analytics department at Renaissance Capital, the CNY bond issues already in circulation have nominal yields of around 700 bp. p. lower than the yield on bonds of the same issuers in rubles. Taking into account the conversion into rubles and the subsequent hedging of the currency risk, the cost of borrowing, according to the analyst of Ingosstrakh-Investments Management Company Artem Autlev, may be about 17%, which is included in the range of coupon rates for ruble placements of VDO. Therefore, he believes that the main goal of the company is to attract funding. “Companies from the sector of high-yield bonds are now experiencing problems with demand when placing securities. The placement of bonds in yuan, according to the company, should attract investors, since now bonds in yuan are a hype topic,” notes Mr. Autlev.
Entering the market by several issuers at once may give rise to some struggle for an investor and lead to the provision of a premium to current levels, said Vladimir Malinovsky, head of the debt market analysis department at Otkritie Investments. Yields in yuan bonds on the Russian market are undervalued, he believes, and as they become saturated with new issues, their yield will approach the yield of dollar bonds, which now stands at 5-6% per annum.
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