November 10, 2017 / 1:42 PM / 2 years ago

Russia, bracing for U.S. sanctions, to woo Chinese investors for its bonds

MOSCOW (Reuters) - Russia plans to pitch its OFZ treasury bonds denominated in yuan to Chinese investors, as a safeguard in case an expansion of U.S. sanctions on Russia prompts other foreign investors to exit the bonds, a Russian deputy finance minister said on Friday.

Sergei Storchak told reporters that Konstantin Vyshkovsky, head of the state debt department at the Finance Ministry, plans to visit China soon for a non-deal road show of yuan-denominated OFZ bonds.

The road show is one of the first practical signs of Russia preparing itself for the potential impact if the United States expands the scope of the sanctions that it imposed over Moscow’s role in the Ukraine crisis.

OFZ bonds are a major source of borrowing for the government, which has already raised over 1.4 trillion roubles ($23.65 billion) via the paper so far this year.

The bonds have attracted Western investors seeking good returns, but this makes Russia vulnerable to losing those investors, so Moscow is looking to Asia to plug the gap.

“We have been traditionally meeting regulators, now the task is a bit wider - to meet not only regulators but also potential investors who would be ready to buy bonds on the Moscow Exchange,” Storchak said.

“We are laying the groundwork to have an alternative just in case our traditional investors take fright. They might be frightened by the new sanctions regime ... We need to be prepared for that.”

In August, U.S. President Donald Trump signed into law a new package of sanctions drafted by U.S. lawmakers. One of the provisions asks the U.S. Treasury Secretary to submit a report on the impact of expanding sanctions to cover Russian sovereign debt.

That report is still pending. Currently, Russian sovereign debt-raising is not directly prohibited by U.S. or European sanctions.

Storchak did not say how much Russia plans to offer in yuan-denominated OFZs but said the offer would not be huge, so China’s authorities should not worry about large capital outflows.

Russia has said in the past it planned to raise the equivalent of $1 billion in yuan through the OFZs.

Following a pause after the Ukraine crisis flared up and sanctions were imposed, the Russian Finance Ministry returned to global debt markets last year, raising $3 billion in Eurobonds, but borrowing via OFZs remains key.

Foreign investors, many of them American, held some 2 trillion roubles ($34 billion), or almost 32 percent of the total OFZ bonds outstanding, as of Sept. 1, according to central bank data.

OFZs offer attractive returns since the central bank’s key interest rate is 8.25 percent, higher than in many other markets.

This year Russia has started selling treasury bonds to ordinary Russians. Storchak said the Finance Ministry might soften the rules for citizens’ OFZ holdings, to boost demand.

($1 = 59.2490 roubles)

Writing by Katya Golubkova; Editing by Christian Lowe and Kevin Liffey

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