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Russia has sold its first bonds denominated in Chinese renminbi, raising nearly $3 billion as it seeks to finance its invasion of Ukraine and deepen its financial ties with Beijing.
Russia’s finance ministry said it had issued 20 billion Rmb ($2.8 billion) in government bonds denominated in the Chinese currency, clearing a route for Moscow to tap low Chinese interest rates for domestic financing. The ministry sold Rmb12 billion of bonds due 2029 at a yield of 6 percent and Rmb8 billion of bonds due 2033 at a yield of 7 percent.
“We have managed to create a liquid sovereign benchmark that will serve as a guideline for pricing of corporate borrowers and contribute to deepening bilateral cooperation between Russia and China in the financial sector,” said Anton Siluanov, Russia’s Finance Minister.
More than half of the bonds were bought by banks, the Treasury Department said, which have built up exposure to the renminbi in recent years by financing trade with China.
The sale of Russian debt is by far the largest among a wave of countries that have switched to renminbi borrowing this year as Beijing seeks to promote greater international use of its currency and challenge the dominance of the US dollar. Hungary issued a Rmb5 billion bond in China in September and the emirate of Sharjah sold Rmb2 billion in October.
The renminbi has become a de facto new reserve currency for Russia, especially after access to dollar and euro funds was severed and the Russian central bank’s foreign assets were frozen following the 2022 invasion of Ukraine.
The Russian economy is struggling with high domestic interest rates of more than 16 percent and inflation of 7 percent, partly caused by the high production costs of goods it would otherwise import. International sanctions that have cut off access to dollar financing are also increasingly restricting oil and gas exports that the Kremlin finances.
The bond will help finance a to grow budget deficit and “gives the Chinese more confidence that Russia is aligned with their geoeconomic agenda of internationalizing the yuan,” said Maximilian Hess, founder of Enmetena Advisory, a political risk consultancy.
“I really think this is something that Beijing would have given a nod of approval to,” he added.
Countries such as Indonesia and Pakistan are considering whether to sell renminbi debt in the Chinese market – known as panda bonds – next year, but others such as Russia have recently borrowed in the currency abroad using so-called dim sum bonds.
Russia has paid higher interest rates this year than other issuers of foreign renminbi debt, such as the Kazakh Development Bank, which sold Central Asia’s first dim sum bond at a yield of 3.3 percent.
Some of Beijing’s biggest borrowers in Africa and Asia – such as Kenya, Angola and Sri Lanka – have also struck deals this year to refinance dollar loans from Chinese banks into renminbi.
It is still rare for foreign governments to issue renminbi-denominated debt in China themselves, as they need high credit ratings to sell to Chinese investors and face hurdles in converting the proceeds abroad.
China has run up a trade deficit with Russia this year after Moscow clamped down on imports of cheap Chinese cars with tariffs while maintaining exports of oil, coal and other fuels to Beijing.
According to the Center for Research on Energy and Clean Air, China has bought almost half of Russia’s oil exports since the end of 2022, including nearly $7 billion in October. This was just before US sanctions on Rosneft and Lukoil targeted the producers of about half of Russia’s export barrels.
Much of the $50 billion in liquid assets in Russia’s National Wealth Fund, a budget reserve, is now denominated in renminbi.
Opening a route to renminbi debt for Russian companies could provide a cheaper form of financing than ruble debt, which is expensive as Russian interest rates have stood at 16.5 percent since October.
Hong Kong-listed aluminum producer Rusal was the first Russian company to sell panda bonds in 2017. In 2022, it issued renminbi bonds in Russia. But regular sales of dim sum bonds have yet to take off.
“Russian companies have been borrowing in Chinese yuan for some time, but there is still a lot of room for that to grow,” Hess said. “One day, Chinese yuan loans in Russia could be as big as dollar loans once were.”
