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China buys US$1b of ruble debt as Russia touts local market

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Chinese investors bought as much as US$1 billion of ruble debt this year and Russia is counting on them purchasing more as the country heads for its widest budget deficit in five years.

[MOSCOW] Chinese investors bought as much as US$1 billion of ruble debt this year and Russia is counting on them purchasing more as the country heads for its widest budget deficit in five years.

"After buying the first lot of these bonds and realizing that they're a good, safe investment, our Chinese partners may expand their investments into the Russian economy," Finance Minister Anton Siluanov said in an interview with Rossiya 24 television, recorded on the sidelines of a BRICS summit in the Russian city of Ufa on Thursday.

Russia will ask China's government to allow its banks to invest in local bonds and is ready to reciprocate by buying Chinese notes, Mr Siluanov said at the summit the day before. Russia is relying in part on the debt market to finance its budget shortfall, which is expected to swell to 2.7 trillion rubles in 2015 and persist for at least two more years.

"Russia needs to borrow capital and China looks like the most realistic source for external borrowing," Andrey Vashevnik, the chief investment officer at R&B Investment Fund Ltd in Moscow, said by e-mail on Wednesday.

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"Mr Siluanov, through talks at the highest levels, is trying to convince Chinese banks to enter Russia. If the Chinese government orders, Chinese banks will turn to Russia."

Sanctions over Russia's role in Ukraine and a slump in oil price have pushed the economy toward recession and its widest deficit since 2010. At the same time, a series of central bank rate cuts and a fragile truce in eastern Ukraine have helped buoy appetite for local debt this year, cutting the yield on five-year bonds to 11.28 percent from 15.41 per cent at the start of 2015 and handing investors the biggest returns in dollar terms in the period.

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