Russia Wealth Fund to Team With China for $25 Billion of Lending

Russia’s sovereign wealth fund will join China Construction Bank Corp. to deliver as much as $25 billion in loans as western sanctions push President Vladimir Putin to look to Asia for financing.

China Construction Bank will provide 85 percent of loans each totaling as much as $1.5 billion, with the Russian Direct Investment Fund lending the other 15 percent, RDIF Chief Executive Kirill Dmitriev said in a phone interview. RDIF is a unit of Vnesheconombank, the state development bank.

“In essence, we guarantee a part of the loan,” Dmitriev said. As many as 70 of Russia’s largest companies could borrow under the plan, he said. The total amount may rise to $25 billion within three years, according to the fund’s press service. Dmitriev earlier said lending would reach $20 billion.

China and Russia will sign a memorandum on the deal Friday as President Xi Jinping visits Moscow to celebrate the end of World War II. Sanctions instituted by the U.S., the European Union and its allies over the Ukraine crisis have left Russia increasingly reliant on Asia for energy investment and financing deals.

Chinese banks are ready to provide loans in several currencies including U.S. dollars, Dmitriev said. RDIF will offer funds as mezzanine capital, receiving payments last in line or converting the money into shares in the event of a default, he said.

He said the sovereign wealth fund will also sign an agreement with CITIC Merchant Corp. Ltd. on creating a Russia-China Investment Bank that will focus on raising Chinese capital for Russian companies. That bank has a pipeline of about 50 projects including three public offerings, he said, declining to give details.

Russia and China are planning to set up an airplane leasing company and a $2 billion agricultural fund to invest in projects in the two countries, Vedomosti reported, citing Dmitriev.

RDIF’s Russia-China Investment Fund will set up the leasing company with United Aircraft Corp. and China’s New Century International Leasing Co., with a plan to supply 100 Superjet 100 airplanes to China over three years, Vedomosti reported, citing Dmitriev. RDIF and China Investment Corp. created the fund in 2012 with initial capital of $2 billion.

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