* Russian firms look to Chinese, Singapore bonds
* Bond issuance down due to sanctions fears
* Asian investors could prove a tough sell
By Sujata Rao and Michelle Chen
LONDON/HONG KONG April 30 Russian companies shut
out of Western markets as a result of the Ukraine crisis are
scouting the possibility of raising cash via Chinese or
Singapore bonds instead, even if a large scale funding switch to
Asia is likely to be a tall order.
Asian investors, eyeing the risks associated with Western
sanctions, could prove a hard sell.
Usually prolific borrowers, Russian firms' bond and loan
issuance this year has languished as lenders fear getting caught
up in U.S. and EU sanctions imposed on Russian individuals in
retaliation for Moscow's annexation of Crimea and support for
separatists in eastern Ukraine.
But with $150 billion or so owed in debt payments this year,
the scramble for funds is driving firms to Asia, a region with
cash-rich investors and governments that are less critical of
the Kremlin's actions.
"We may see some developments in Asia in exotic currencies
such as the 'dim sum' market or in Singapore dollars. We are
seeing Russian issuers expressing interest in those segments of
the market," said Cecile Camilli, managing director for CEEMEA
debt capital markets at Societe Generale.
'Dim sum' bonds refers to debt denominated in China's yuan
but sold outside China, most commonly in Hong Kong.
"At the moment it's non-deal related, but they are preparing
themselves," Camilli added.
Russia's state-run Sberbank last week held a so-called
'non-deal' roadshow in Singapore and Hong Kong - setting out its
stall for investors to test potential interest in lending to the
bank. Another government entity, Gazprom, will meet Asian
investors next week following news it is close to a crucial gas
supply deal with China.
Gazprom, Russia's top natural gas producer, plans
to supply China with 38 billion cubic metres of gas per year -
around a quarter of the company's exports to Europe - from 2018,
and President Vladimir Putin has urged companies to boost
exposure to Asia.
Officials at banks' syndicated loan desks said Gazprom was
in the market to extend an existing loan maturing in July.
One Hong Kong banker told Reuters that a dim sum bond will
soon be issued by an unnamed Russian bank, adding that several
other Russian firms had approached his bank with an eye on that
So far, Russia's Asian borrowing remains modest. It includes
just over $1 billion worth of yuan bonds since 2004, and just
shy of that amount in Singapore dollars, according to data from
Thomson Reuters. There have been 11 issues in total, the data
The push for Eastern finance is part of a broader plan to
diversify Russia's economy away from Europe and towards Asia.
Putin will visit China next month while Igor Sechin, the CEO
of state-run oil firm Rosneft and who is on the latest U.S.
sanctions list, last month travelled through Asia to shore up
ties with eastern allies.
"(Asia) is a large market and we have been looking at it for
quite a long time ... Over the long term, these markets may
supplant the European and American markets for us, but it won't
be quick," Alexander Ivanov, deputy head of state-run bank VEB,
told reporters earlier this month after Western banks declined
to syndicate a new loan to replace a maturing facility.
Dim sum bonds currently make sense for issuers because the
cost of swapping future payments from one currency to another
via cross-currency swaps between offshore yuan and the dollar -
- has become progressively cheaper since late February when the
yuan weakened sharply.
That means it is relatively cheap to swap bond proceeds into
dollars if that is the currency the issuer ultimately needs.
There are difficulties however. One is size - the whole dim
sum market is worth around $110 billion, less than half of what
Russian companies have borrowed in euro- and dollar bond markets
in the past decade. Second, the market cannot provide
longer-term funding, with 2-3 year maturities the most common.
"Asian markets cannot replace the volume the Russians have
in dollars, it's a question of getting some money in and
posturing to show they don't need U.S. investors," said
Apostolos Bantis, a corporate debt strategist at Commerzbank.
"Asian investors may feel more comfortable with Russian risk
than Western investors. And if China and Russia do get closer,
that market is going to grow."
But it remains to be seen whether Asian fund managers will
be willing to handle Russian risk. U.S., European and Japanese
sanctions are less harsh than expected but investors and
bankers, even outside these regions, may look carefully at the
reputational risks associated with a Russian deal at the moment
Bankers in Asia note that some syndicate desks could be
reluctant to handle such deals, fearing U.S. fines in future of
the sort imposed on institutions for dealing with Iran.
And the market in existing Russian dim sum debt has more or
less dried up, with prices marked sharply lower. Yields on a 1
billion-yuan bond from a Gazprombank arm and on
VTB's 500 million-yuan issue are up 200 basis
points this year, rising far more than non-Russian bonds.
"Fund managers are reluctant to buy Russian paper currently
and our conversations with some of them show they are adopting a
wait-and-watch approach," said a banker at the syndicate desk of
a big Chinese institution in Hong Kong.
"The secondary market for Russian paper in yuan is all but
closed. Some Russian paper may come around in second half but
for now the yuan market is closed for them."
(Additional reporting by Saikat Chatterjee in Hong Kong;
Christopher Langner of IFR; Tessa Walsh and Sandrine Bradley of
Thomson Reuters Loan Pricing Corp.; Editing by Giles Elgood)