Russia Set to Issue Government Bonds in Chinese Yuan Denominations

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china-yuan-renminbi-and-russia-rubleIn a sign of the global shift away from American hegemony and dollar, Russia is poised to issue a significant OFZ Bond in Chinese currency, the RMB Yuan. OFZ Bonds (Obligatsyi Federal’novo Zaima) are Federal Loan Obligations, being government bonds issues by the Russian government.

Yelena Chaikovskaya, the director of the financial markets development department at the Central Bank of Russia has stated that the plan to issue the bonds are now in the final stages, the infrastructure is ready and now the matter is up to the Finance Ministry. The initial offering is CNY 6 billion, an amount equivalent to US$1 billion, and is a pilot scheme to help test infrastructure, following which there may be corporate lending facilities denominated in yuan.

Chaikovskaya said that the Finance Ministry will make the decision on the timing of the bond offering.”A surprise could happen any day. But this is the Finance Ministry’s decision. Everything that depended on us, the technology infrastructure, licenses for subsidiaries of Chinese banks, all of the infrastructure has been set up and is ready even tomorrow, the day after tomorrow. When exactly to come out is the commercial decision of the Finance Ministry.”

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The Chinese regulator’s position on how Chinese investors’ participation in buying these bonds will influence capital outflow is also important. A road show is being held in order to once again confirm the “permission and will of Chinese regulators for their investors to buy these bonds. According to our information, everything is going alright so far. The agreements that were reached a year ago and stipulated in protocols, including of the intergovernmental commission, that the Chinese side is confirming and welcoming the placement of government bonds in Chinese yuan so that mainland investors acquire them, these agreements are being affirmed in the course of the non-deal road show. The political will in China regarding this issue is not formalized, which is “both a plus and a minus,” she said. “If they realize that something benefits them, they allow pilot projects without instructions, to beat a path and then they pave it with instructions. This is the regulatory sandbox that we’re going into.”

Asked about Euroclear’s participation in the placement of yuan OFZ, she said, “it is expected that the bonds will be Euroclearable – it was exactly the same with an issue of Russian Eurobonds, when the global certificate couldn’t be deposited in Euroclear and it was placed in the National Settlement Depository (NSD), and then accounts were opened in Euroclear.” “Here the situation will be the same: the global certificate will be in the NSD, Euroclear can open an account in the NSD and then other clients can go through Euroclear.” Euroclear is a Belgium-based financial services company that specializes in the settlement of securities transactions as well as the safekeeping and asset servicing of these securities.

Chris Devonshire-Ellis of Dezan Shira & Associates comments, “This offering is a taste of things to come as sovereign states reject the dollar in favor of developing their own, non-US clearing infrastructure and financing. It will have a positive impact on the Ruble especially and assist in the development of the trade corridor between Russia and China”.


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