Russian banks are increasingly selling bonds in the offshore yuan market
as growing demand allows them to borrow at cheaper rates and gives them
a chance to diversify their funding bases.
Investors say they are keen to buy the bonds because they are often issued
by state-backed, high-profile Russian banks and offer an attractive yield
and exposure to the Chinese currency, known as the renminbi, or yuan.
Russian banks—including JSC VTB Bank, Russian Agricultural Bank OAO and
Russian Standard Bank ZA—have already sold the equivalent of $480 million
of the bonds this year, compared with $309 million in the previous three
years. Gazprombank OAO, the financing arm of energy giant Gazprom, OGZPY
+3.34% also issued yuan debt.
The trend illustrates the growing prominence of the offshore renminbi
market. Standard Chartered expects issuance to total between 320 billion
yuan ($51.3 billion) and 350 billion yuan this year, up from last year’s
record of 267 billion yuan.
“What’s driving this largely is yield, some expectation of currency
appreciation and the need for investors to put their renminbi somewhere
while they wait,” said Edmund Harriss, director at Guinness Asset
Mr. Harriss’s Renminbi Yuan Chinese Currency Fund bought VTB’s yuan
bonds, which offered a coupon of 3.8%, in January. Not only are the
yields on the debt attractive, investors have been drawn to the Russian
bonds because they feel more comfortable giving their money to Russian
banks than some of the Asian issuers.
A large percentage of bond issuance in the offshore renminbi market are
from either China or Hong Kong, and for European-based investors who
might not be familiar with these companies, the risk profile of these
issuers may be deemed to be on the high side,” said Liang Choon Koh,
head of Asia fixed income at Nikko Asset Management.
“They [investors] are more comfortable with issuers that have recognizable
brand names and those that are investment-grade rated.” VTB, Gazprombank
and Russian Agricultural Bank are all investment-grade rated, quasi-sovereign
borrowers, with experience issuing in the dollar and euro markets.
Russian Standard Bank has a high-yield rating, but is the country’s biggest
lender to consumers and one of its largest privately owned banks.
Mr. Koh said he looked at all three investment-grade issuers from Russia,
and bought some of the debt, but declined to say which banks’ bonds he
bought. Nikko Asset Management has a total of $154 billion in assets under
management. Demand for the yuan-denominated debt is allowing the banks to
borrow at cheaper rates than they could in the dollar or euro markets.
For example, Russian Agricultural Bank sold a three-year 1 billion yuan
bond with a yield of 3.6%. It pays 5.3% to investors in the dollar market
for debt of a slightly longer maturity of five years.
Alan Roch, head of bond syndication for the Asia-Pacific region at the
Royal Bank of Scotland Group RBS.LN -1.96% PLC, one of the banks that placed
the Russian Agricultural Bank bond, said he was very confident of selling
the Russian bank’s debt at a discount to the dollar market even before his
team visited prospective investors to pitch the sale.
The Singapore-based banker said RBS was seeing growing interest in issuing
yuan debt from non-Chinese issuers and Russian names in particular. At the
same time, demand to buy the debt is deepening as investors seek to diversify.
“European issuers have been quicker in identifying this and the more that
come and issue in renminbi, the more will want to follow, as their comfort
on the execution of these deals improves,” said Mr. Roch.
Artyom Lebedev, a spokesperson for Russian Standard Bank, said the attractive
cost of funding in yuan and the opportunity to diversify the bank’s debt
portfolio meant it would be eager to sell more debt in the offshore renminbi market.