Russian companies’ plan to access low-cost funding through the Chinese bond market is facing significant challenges. According to sources cited by Reuters, Chinese banks and investors are steering clear of these projects due to concerns over Western sanctions, underscoring the financing challenges that Russian enterprises are currently grappling with.
This situation presents a test for Beijing as well, as it navigates trade negotiations with Washington while forging what it calls an “unlimited” partnership with Russia.
Last month, Reuters reported that top Russian companies, including the state nuclear corporation Rosatom and gas giant Gazprom, are exploring issuing renminbi-denominated “panda bonds.”
This announcement came shortly after Russian President Vladimir Putin’s visit to China in early September. Since the outbreak of the Ukraine conflict, Russian companies have been cut off from Western capital markets.
However, Chinese bankers and investors are not optimistic about the prospects of Russian companies issuing panda bonds in the near future. A source familiar with the situation mentioned that regulators and banks are wary of secondary sanction risks.
The source noted that Russian aluminum producer Rusal and Rosatom have made little progress in advancing panda bond issuance over the past year, stating that “preparations have been ongoing but the projects just can’t move forward.”
Rusal declined to comment. While Rosatom’s top management has been sanctioned, the company itself is not on the U.S. sanctions list but also refused to comment.
Although Gazprom is unable to raise funds in the U.S. or European markets due to the Russia-Ukraine conflict, it has not been placed on the U.S. Treasury Department’s most severe “Specially Designated Nationals and Blocked Persons List” – indicating that the company has not faced asset freeze sanctions. The company did not respond to requests for comment.
An official from a Chinese securities exchange stated that they are not aware of any specific issuance plans from Russian companies. Several domestic bond investors in China expressed caution towards purchasing such debts due to geopolitical risks.
Five sources interviewed by Reuters refused to disclose their identities due to the sensitivity of the matter.
The first source revealed that since 2022, Chinese state-owned securities firms like Galaxy Securities have ceased transactions with Russia, and the “Big Four” state-owned banks are unwilling to underwrite such bonds due to geopolitical concerns.
Galaxy Securities did not respond to Reuters’ email request for comment.
A Chinese state-owned enterprise manager, who preferred to remain anonymous, stated that some Russian companies are in dire need of low-cost financing to the extent that they are seeking to restructure loans through bulk commodity trade agreements.
Kirill Lysenko, an analyst at the Russian rating agency Expert RA, noted that the process of Russian companies issuing panda bonds could take several years.
He stated, “Even within the framework of ‘friendly nations,’ geopolitical risks still exist. If sanctions affect China’s financial infrastructure, there could be complexities in debt repayment.”