China to step up Russian debt financing

Updated: 2015-05-09 10:28

By Cai Xiao (

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The Russian Direct Investment Fund, the Russia-China Investment Fund and China Construction Bank announced on Friday a special mechanism that will increase Chinese banks' debt financing of Russian companies.

Under the new mechanism, as yet unnamed, the Russian Direct Investment Fund and the Russia-China Investment Fund will look at Russian borrowers with good credit ratings and evaluate every loan with Chinese banks to control risk.

The borrowers that receive loans from Chinese banks should already be or will be invested in by the Russia-China Investment Fund, or RCIF will become a joint lender with Chinese banks.

"Russian companies have a growing demand for attracting debt financing from abroad, and the mechanism will significantly help them finance funds to implement their production and investment programs without cutting costs," said Kirill Dmitriev, CEO of Russian Direct Investment Fund, the country's sovereign wealth fund, and co-CEO of RCIF.

Set up in 2012, the RCIF is a private equity fund into which each nation has committed $1 billion. It has invested, with partners, in 13 deals in the Russian and Chinese markets totaling more than $2 billion.

"It's a unique opportunity for Chinese banks to expand their presence in Russia as good Russian companies want to develop businesses with them and European banks are conservative," said Dmitriev.

Russia currently faces sweeping US and EU financial sanctions amid the Ukraine crisis. According to Dmitriev, Russian companies with export or China-related businesses find it easier to get loans from Chinese banks. They are in sectors including agriculture, petrochemicals, manufacturing and infrastructure.

He said the Russian Direct Investment Fund and CITIC Merchant, the merchant banking arm of leading Chinese financial company CITIC Group, have agreed to set up a Russia-China Investment Bank.

"The institution will provide a wide range of investment banking services to strengthen economic cooperation between Russia and China, focusing on attracting Chinese capital into Russian companies," said Dmitriev.

As part of the project, RDIF and CITIC Merchant are also considering the possibility of launching a joint investment fund, which would operate separately from the Russia-China Investment Bank.

On Friday, a consortium of investors comprising the Russia-China Investment Fund, Sukhoi Civil Aircraft, United Aircraft Corp, the People's Government of Shaanxi province and New Century International Leasing, announced the launch of a leasing platform to promote the Sukhoi Super Jet 100 passenger plane to Chinese and other Asian markets.

The agreement was signed in the presence of Chinese President Xi Jinping and his Russian counterpart, Vladimir Putin, during Xi's visit to Russia.

The Russian Direct Investment Fund, the Russia-China Investment Fund and the government of Heilongjiang province also signed an agreement during Xi's visit to launch a $2 billion fund targeting investment in agricultural projects in Russia and China.

Under the agreement, they will also consider creating an experimental agricultural free trade zone between Heilongjiang and the Amur region. The free trade zone would use the direct exchange rate between the rouble and the yuan, and it would support the implementation of incentives for Russian and Chinese high-tech agricultural businesses.