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Comment by Andrey Solovyev, global head of DCM at VTB Capital, for GlobalCapital

3 December 2018

VTB pushing dim sum for Russian borrowers

VTB Capital is encouraging Russian borrowers to consider the dim sum market as a supplementary source of funding because their access to core markets has been restricted since the US imposed sanctions in April. However, the potential scale of the dim sum market is limited.

The imposition of sanctions on some Russian individuals and entities by the US has left the dollar market inaccessible to most Russian borrowers.

Even in euros, only Gazprom and the sovereign have so far tested the waters since the sanctions were imposed in April this year.

As a result, many Russian borrowers have been forced to meet their financing needs domestically. However, RusHydro decided to look further afield, printing Rmb1.5bn ($217.7m) of three year paper in November.

Riccardo Orcel, head of international operations at VTB Capital (bookrunner of RusHydro’s deal), said that he expects dim sum to “gain importance in terms of reserve and as a borrowing currency for Russian companies” and added that VTB is working to bring new issuers to the currency”.

“We’re focusing on the offshore yuan market,” said Andrey Solovyev, global head of DCM at VTB Capital. “RusHydro was the first corporate borrower to go to the market. It’s convenient, because it’s the same as Eurobond documentation.”

However, the market will never approach the scale of the dollar or euro markets as a source of funding for Russian issuers.

“The deal size is small, usually around Rmb800m, and the tenors are typically short — out to three years,” said Solovyev. “It’s only ever going to be a supplementary source of capital.”

The cross currency basis swap market adds an extra layer of complication.

While some borrowers in Russia have liabilities in renminbi, the majority will swap the proceeds back into roubles. This means that issuers are only able to access the currency when the basis swap market provides a cost of funds competitive with their domestic funding.

While issuing renminbi onshore in China would allow Russian borrowers to access a potentially much larger investor base, Solovyev believes it is unlikely to happen.

“There are strict rules about expatriating money, so swaps are very difficult.”

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