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Rosatom and Gazprom investigate sales of Chinese "panda" bonds

Sources from top Russian companies, including the vast Russian nuclear corporation Rosatom, and giant gas concern Gazprom, are looking at selling "panda bonds" denominated in yuan, according to company sources on Monday. Western capital markets, however, remain closed to Russia.

Since Moscow's invasion of Ukraine in 2022, Russian companies are no longer able to access the capital markets of the West.

The Financial Times reported Monday that China is preparing to reopen the domestic bond market for major Russian energy companies, as Xi Jinping & Vladimir Putin continue to deepen their partnership "without limits".

Putin, who visited China this week, called for a joint financial infrastructure between countries in the 'Global South.' He also suggested that the members of the Shanghai Cooperation Organisation should sell their shares.

Joint bonds

The Chinese rating agency CSCI Pengyuan has assigned the highest AAA rating to Gazprom. This company holds the largest reserves of natural gases in the world. This opens the door for possible debt issuance on China's bond market.

Rosatom, the largest nuclear company in the world, is preparing to also issue bonds denominated in yuan, according to a spokesperson.

Ilya Rebrov, the Chief Financial Officer of Rosatom, told a publication in August that in order to raise funds from abroad, the Supervisory Board had approved plans. He also said that preparations were underway for Atomenergoprom's generation unit to issue bonds in Yuan.

Atomenergoprom announced in April that it received a "AAA" credit rating from China's Dagong Global Credit Rating Agency with a stable outlook.

The Chinese government will need to approve any Russian bonds, and the buyers of Russian corporate Yuan bonds must weigh the risks of secondary sanctions from the U.S.

CHINESE BANK BONDS FOR RUSSIAN COMPANIES?

According to Deutsche Bank, the market for Panda Bonds, a Chinese Yuan-denominated bonds from a non Chinese issuer, has seen record growth in both 2023 and 2024. This was driven by geopolitical conflicts.

Even though the conflict in Ukraine began, only one Russian company - aluminium producer Rusal - sold panda bond.

Companies have issued yuan bonds on the Russian market, which is a small and shallow one. The yuan currency has also become the most popular foreign currency in Russia. China's bond market offers a much larger reservoir of capital.

Famil Sadygov, Gazprom's deputy CEO, said that the company was "strongly creditworthy" and the rating confirms the financial stability of the company.

One source with direct knowledge about the situation said that a long-term issuer ratings on Gazprom would not necessarily result in an issuance of bonds denominated in yuan.

"There's no certainty about the bond issue yet. A rating allows you to enter the market if necessary. "This is work for future," said the source.

According to Kirill Lysenko, an analyst at Expert RA - Russia's oldest rating agency - the approval process will still take place, but it could take many years.

Lysenko stated that "Chinese financial institutions and regulators can be under increased pressure at any time in the form secondary sanctions by major Western economies."

Gazprom was given an "AAA" credit rating with stable outlook just after Russia, China and other countries gave their approval to Power of Siberia 2 - a huge gas pipeline linking both countries in a bid to reduce economic dependence on the West.

Gazprom is unable to raise finance in the United States and Europe, but it has not been subjected to U.S. blockade sanctions. Rosatom's top management has been sanctioned by the U.S., but Rosatom itself is not subject to sanctions.

CSCI Pengyuan cited high geopolitical risk in its analysis of Gazprom’s outlook and rating decision. (Writing and Addirional Reporting by Shanghai Newsroom, Editing by Kevin Liffey; Written by Gleb Bryasnki & Guy Faulconbridge)

(source: Reuters)