Ukraine war: Russia’s Chinese yuan funding lifeline is getting too expensive
- After the invasion of Ukraine isolated Moscow from the Western financial system, Russian companies have come to rely on the yuan for foreign-currency needs
- But, insufficient yuan liquidity in Russia and demand for the currency from importers are contributing to higher borrowing expenses
The funding dilemma leaves companies like Russia’s biggest miner, MMC Norilsk Nickel PJSC, choosing between expensive rouble funding or the rising cost of domestic yuan debt.
Russia more than doubled its benchmark last year, saddling corporate borrowers with as much as 1.2 trillion roubles (US$13 billion) in extra debt-servicing costs, according to Moscow-based consultancy Yakov & Partners.
“Given current realities, the average cost of debt will be raising,” Sergey Malyshev, Nornickel’s chief financial officer, said in a statement sent to reporters last month.
Nornickel’s interest payments are set to reach US$1 billion in 2024 after US$800 million in 2023 – compared with US$315 million in 2021, the last full year before the war. The burden is nearly as intense for the largest oil producer, Rosneft PJSC, pushing it to accelerate debt repayments after interest consumed 50 per cent more money in the fourth quarter than a year earlier.