Russia's plan to borrow in yuan stumbled over Panda bonds

Russia put off its plans to borrow in yuan the last minute as it did not meet a condition laid down by Beijing - to borrow by issuing Panda bonds on China's domestic market, Russia's deputy finance minister said. Russia trumpeted its intention and ability to sell a debut treasury bond denominated in the Chinese currency throughout 2016. But the finance ministry has not tapped the Chinese debt market yet because it has not reached a final agreement with Beijing.
"We have no plans yet to sell Russian bonds in the form of Panda bonds, that is where all the problems come from," Deputy Finance Minister Sergei Storchak told Reuters in an interview. Russia wanted to borrow yuan by the end of 2016, what was seen as a step towards Moscow's ambition of using Asian debt markets to compensate for its limited access to Western funding.
The two sides held numerous talks on the bonds, with the finance ministry's advocating for offering its so-called OFZ bonds for Chinese investors in Moscow. The Moscow Exchange told Reuters it merely needs to "press the button" once the Russian and Chinese governments agree on the delayed sale.
Seeking to limit capital outflows, Chinese authorities were not ready to let its local investors play on the Russian bond market, Storchak said. Speaking on the sidelines of an annual international economic forum in St. Petersburg, Storchak said China had instead offered Russia to raise funds via Panda bonds. Panda bonds are circulated on the China's onshore market by foreign governments and firms.
"We have decided that Panda bonds are a generally available instrument, which is not really interesting and efficient from the point of view of our market development," Storchak said. "Especially given that we could easily compensate the absence of yuan borrowing with borrowing in roubles," he said. The finance ministry is now taking its time to study requirements of its Chinese partners, Storchak said. Eventually Russia could change its mind and issue bonds in onshore China as the market seen growing further, Storchak said.