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World

German car giants and Asian battery kings: a match made in Hungary

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  • German, Chinese and S.Koreans head to Hungary
  • They dominate auto investment and subsidies
  • Orban’s Hungary keen to court foreign business

BERLIN/BUDAPEST, Dec 13 (Reuters) – German automakers and Asian battery suppliers are getting together in Hungary in a multi-billion-dollar marriage of convenience to drive their electric ambitions.

The companies are flocking to central Europe, where Viktor Orban’s government is defying Western wariness of China and offering generous benefits to host foreign operations and stake Hungary’s claim as a global centre for electric vehicles (EVs).

Investment in the Hungarian auto industry is being dominated by three countries – Germany, a champion carmaker, plus China and South Korea, EV battery leaders way ahead of European rivals.

Companies from those three countries have accounted for 29 out of the 31 cash subsidies handed out by Hungary for major investments in its auto and battery sector over the past decade, according to a Reuters analysis of government data that shows the scale of German, Chinese and Korean convergence there.

“Cathodes, anodes, separators, assembly lines, the full battery supply chain is here,” said Dirk Woelfer of the German-Hungarian Chamber of Commerce in Budapest. “This is a foot in the door to Europe.”

Recipients of such subsidies included the likes of German automakers BMW (BMWG.DE) and Mercedes-Benz (MBGn.DE), and battery makers such as China’s BYD and Korean rival Samsung SDI (006400.KS). The median subsidy level has been 15% of investment.

In total, Hungary has received over 14 billion euros ($15 billion) in foreign direct investment into its battery sector alone in the past six years, according to government figures.

Major investments are broadly classed as those worth over 5-10 million euros, varying with factors such as jobs created.

State incentives and the opportunity for automakers and battery suppliers to work next door to each other is proving a strong pull, according to interviews with about 20 industry players and consultants in Germany, Hungary, China and South Korea.

China’s CATL (300750.SZ), the world’s No. 1 EV battery maker, and Korean battery giants SK Innovation (096770.KS) and Samsung SDI, all told Reuters that the planned proximity to German carmakers was a key factor in their decisions to invest in Hungary, as well as being able to source separators and other components there.

CATL is investing $7.6 billion to build Europe’s largest battery plant in Hungary. This plant and the $2.1 billion BMW factory will both be sited in the city of Debrecen, which is attracting an ecosystem of suppliers, ranging from makers of brakes and battery cathodes to industrial machinery.

Mercedes-Benz is converting its factory in Kecskemet to produce electric cars, while Volkswagen’s (VOWG_p.DE) Audi is making cars and electric motors in Gyor.

Such big business could present a boon for Prime Minister Orban’s government as the country faces its toughest economic environment in more than a decade, with inflation running above 20%, the economy slowing and EU funds in limbo.

Yet the Hungarian EVs project also faces stiff obstacles, according to many of the industry insiders.

One key concern is the huge demands that massive battery plants will place on the electricity grid, which needs to shift away from fossil fuels towards renewables to meet the net-zero emissions targets of much of the auto industry, the people said.

A lack of specialised workers in Hungary to work in battery cell manufacturing could also drag on capacity, they added.

HIPA, the Hungarian Foreign Ministry agency responsible for attracting investments in areas ranging from batteries and cars to logistics, did not respond to Reuters queries about the EV industry.

‘CHINA’S MADE GOOD STEPS’

Hungary’s welcome to Asian battery makers might jar with concerns expressed by Brussels and Berlin about the perils of Europe becoming too dependent on China and other foreign powers, particularly in technologies central to the green transition.

Still, for now, the need to ramp up EV output leaves the European auto industry little choice but to source from Asian players, said Csaba Kilian of Hungary’s automotive association.

“I absolutely agree that European manufacturers should have their own sources … but it’s a competition, and China has made good steps,” he added. “There is a learning curve.”

Europe should have a EV battery manufacturing capacity of 1,200 gigawatt hours (GWh) by 2031 if current plans come to fruition, outstripping expected demand of 875 GWh, Benchmark Mineral Intelligence (BMI) estimates. But of that 1,200 GWh, 44% will be provided by Asian companies with factories in Europe, ahead of homegrown firms on 43% and U.S. pioneer Tesla (TSLA.O) with 13%, according to a Reuters calculation based on BMI data.

The prospects for developing a battery sector in Germany have been set back by record energy there as a result of the loss of Russian gas, according to autos consultants at Boston Consulting Group and Berylls Strategy Advisors.

Hungary offers a comparatively stable energy system bolstered by nuclear energy, as well as high subsidies and Europe’s lowest corporate tax rate of 9%.

The entire battery supply chain has come to the country, said Ilka von Dalwigk, policy manager at the European Battery Alliance, launched by the European Union in 2017 to kick-start a homegrown industry.

“Everything is located there. When we look at the forecast for 2025 and 2030, it looks like it will have one of the largest production capacities in Europe,” she added.

“It might very well be that Hungary is in fact the next big battery production cluster in Europe.”

Asked about concerns about reliance on Asia for technology, an EU official said the bloc – which must approve member state subsidies to investors – had a system in place to cooperate and exchange information on investments from non-EU countries that may affect security.

The European Commission is currently in talks with Hungary over the size of the subsidy the country will offer to CATL for building the Debrecen plant, the official added.

‘SENDING THE WRONG SIGNAL’

For some Western companies, setting up shop in Hungary is a tough decision.

German autos supplier Schaeffler said it was on the verge of setting up its primary electric motor plant in Hungary rather than Germany in August because of the appeal of Hungary’s incentives, but decided on Germany for fear of sending “the wrong signal” to Germans who fear a loss of jobs to overseas.

Other industry players expressed a range of concerns over potential pitfalls for the burgeoning Hungarian auto industry as factories ramped up, including the power grid issue.

Batteries, in particular, are highly energy-intensive parts of EVs to produce, requiring high amounts of power for the drying the materials and machine operation.

Hungary’s sources of energy in 2021 comprised 80% fossil fuels, 14.5% nuclear and 3.6% solar, according to a Reuters calculation of data from the BP Statistical Review of World Energy.

The mix spells trouble for carmakers who will soon need to showcase carbon-free credentials across their supply chains under new German and European legislation.

Hungarian Foreign Minister Peter Szijjarto met senior executives from BMW and auto suppliers including Schaeffler and Knorr-Bremse in Munich last month, ahead of the German carmaker announcing it was beefing up its investment in the country.

Topics discussed included plans to improve logistics infrastructure in Hungary and increasing the amount of renewables energy used for the power grid, according to one of the companies that attended.

When BMW first announced its plan to build its Debrecen plant, in 2018, the government committed to spending around 135 billion forints on improving local infrastructure, according to calculations by the German-Hungarian Chamber of Commerce.

On the battery side, CATL told Reuters it was considering developing solar power with local partners in Hungary.

Despite the risks, Alexander Timmer, a partner at Munich-based consultants Berylls Strategy Advisors who has worked on several autos and battery projects in Hungary, said the country presented an appealing package.

“The combination of cost advantages, state subsidies, and closeness to automakers’ plants makes Hungary increasingly attractive to battery producers, he added.

($1 = 397.54 forints; $1 = 0.9483 euros)

Reporting by Victoria Waldersee in Berlin, Gergely Szakacs in Budapest; Additional reporting by Heekyong Yang, Zhang Yan; Editing by Pravin Char

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Business

Canada orders three Chinese firms to exit lithium mining

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  • China says Canada breaks trade and market rules
  • Chinese companies’ shares fall
  • Companies say do not expect major impact on performance

OTTAWA/BEIJING, Nov 2 (Reuters) – Canada ordered three Chinese companies on Wednesday to divest their investments in Canadian critical minerals, citing national security.

China in response accused Ottawa of using national security as a pretext and said the divestment order broke international commerce and market rules.

As countries compete to shore up reserves of materials needed for a transition to a cleaner economy, the news pushed down the Chinese companies’ shares on Thursday, although they said in stock exchange filings they did not expect a major impact on their performance.

The three ordered to divest their investments are Sinomine (Hong Kong) Rare Metals Resources Co Ltd, Chengze Lithium International Ltd, also based in Hong Kong, and Zangge Mining Investment (Chengdu) Co Ltd.

The Canadian government ordered the divestiture after “rigorous scrutiny” of foreign firms by Canada’s national security and intelligence community, Industry Minister Francois-Philippe Champagne said in a statement.

“While Canada continues to welcome foreign direct investment, we will act decisively when investments threaten our national security and our critical minerals supply chains, both at home and abroad,” Champagne said.

Sinomine was asked to sell its investment in Power Metals Corp (PWM.V), Chengze Lithium was asked to divest its investment in Lithium Chile Inc (LITH.V) and Zangge Mining required to exit Ultra Lithium Inc (ULT.V).

‘UNREASONABLE’

Chinese foreign ministry spokesperson Zhao Lijian said the Canadian government was using national security as a pretext to block normal cooperation between Chinese and Canadian companies and was damaging global supply chains.

“China urges Canada to stop the unreasonably targeting Chinese companies (in Canada) and provide (them) with a fair, impartial and non-discriminatory business environment,” Zhao told a regular news briefing, adding that Beijing would resolutely defend the legitimate rights and interests of Chinese companies

Spot lithium prices have risen by more than 200% in the last year, driven by supply constraints that are expected to endure.

Rystad Energy forcast primary lithium minerals supply to be 8.5% short of the total lithium demand 2025, compared with about 10% short of demand this year.

“The latest attitude from Ottawa underscores the global competition of critical battery minerals in light of projected EV battery demand boom,” Susan Zou, a senior analyst at Rystad Energy, said of Canada’s decision.

The share price of Sinomine Resources fell 7.8% to 86.74 yuan ($11.86) on Thursday, while Chengxin’s share price fell by as much as 4% but closed at 0.7% higher at 45.65 yuan. Zangge Mining’s share price slid 3.7% during the day before edging 1.1% up to close at 28.96 yuan.

Last week, Ottawa said it must build a resilient critical minerals supply chain with like-minded partners, as it outlined rules meant to protect the country’s critical minerals sectors from foreign state-owned companies.

“The federal government is determined to work with Canadian businesses to attract foreign direct investments from partners that share our interests and values,” Champagne said.

Canada has large deposits of critical minerals such as nickel and cobalt essential for cleaner energy and other technologies. Demand for the minerals is projected to expand in the coming decades.

Earlier this year, countries including Britain, Canada and the United States established a partnership aimed at securing the supply of critical minerals as global demand for them rises.

($1 = 7.3163 Chinese yuan renminbi)

Reporting by Ismail Shakil in Ottawa and Siyi Liu in Beijing, additional reporting by Eduardo Baptista in Beijing
Editing by Chris Reese, Sandra Maler and Barbara Lewis

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World

German go-ahead for China’s Cosco stake in Hamburg port unleashes protest

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  • Green light for Cosco investment divides lawmakers
  • No management or strategic decisions for Cosco
  • China’s foreign minister: hope for ‘pragmatic cooperation’
  • Opposition against deal within coalition parties

BERLIN, Oct 26 (Reuters) – The German cabinet allowed China’s Cosco to buy a stake in a terminal in the country’s largest port on Wednesday in a decision pushed through by Chancellor Olaf Scholz that triggered unprecedented protest within the governing coalition.

With the support of Scholz’s Social Democrat-led ministries, the cabinet approved a 24.9% stake investment by Cosco in one of logistics firm HHLA’s (HHFGn.DE) three terminals in the Hamburg port.

The approved investment is less than the initially planned 35% stake that the Chinese shipping giant and HHLA had aimed for and does not give Cosco any say in management or strategic decisions.

But the painful experience of being too dependent on Russian gas has changed many politicians’ attitude towards strategic foreign investment. The foreign ministry was so upset over the approval that it drew up a note on the cabinet meeting documenting its rejection, Reuters was told by two government sources.

The investment “disproportionately expands China’s strategic influence on German and European transport infrastructure as well as Germany’s dependence on China”, the document, seen by Reuters, says. It points to “considerable risks that arise when elements of the European transport infrastructure are influenced and controlled by China – while China itself does not allow Germany to participate in Chinese ports”.

In the event of a crisis, the acquisition would open up the possibility for China to politically instrumentalise part of Germany’s as well as Europe’s critical infrastructure, it says. The economy ministry and the four ministries led by the liberal Free Democrats joined in drawing up the note, according to the sources.

Scholz, a former mayor of Hamburg, has once again asserted his will against his coalition partners, the Greens and the Free Democrats. After pushing through a nuclear power extension single-handedly last week, the Cosco move fuels discord at home and among European allies who are against the Chinese investment and already see Scholz as increasingly isolated.

Scholz is scheduled to travel to China next week.

HHLA WELCOMES DEAL

HHLA, which is majority-owned by the city of Hamburg and one of the main users of the port, welcomed the deal.

“We appreciate that a solution has been found in objective and constructive talks with the federal government,” said Angela Titzrath, chairwoman of HHLA’s executive board.

It was working on finding an agreement with Cosco on the new conditions in a timely manner, she said.

With the original 35% deal, the German logistics firm had wanted to tie its long-standing shipping customer to Hamburg port in the face of fierce international competition.

Cosco did not immediately reply to a request for comment. A German government source told Reuters that the Chinese company had agreed to the deal.

Chinese foreign ministry spokesperson Wang Wenbin, asked about the deal, said on Wednesday that China hoped “relevant parties would see pragmatic cooperation between China and Germany rationally (and) stop gratuitous speculation”, without giving further details.

Supporters of the HHLA deal say it will allow Hamburg to keep pace with rival ports that are also vying for Chinese trade and some of which are partly owned by Cosco.

Reporting by Andreas Rinke, Jan Schwartz, Eduardo Baptista, Paul Carrel; writing by Rachel More, Kirsti Knolle; editing by Maria Sheahan, Louise Heavens and Nick Macfie

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World

Putin orders seizure of Exxon-led Sakhalin 1 oil and gas project

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MOSCOW/HOUSTON, Oct 7 (Reuters) – Russian President Vladimir Putin signed a decree on Friday that establishes a new operator for the Exxon Mobil Corp-led (XOM.N) Sakhalin-1 oil and gas project in Russia’s Far East.

Putin’s move affecting Exxon’s largest investment in Russia mimics a strategy he used to seize control of other energy properties in the country.

The decree gives the Russian government authority to decide whether foreign shareholders can retain stakes in the project.

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Exxon holds a 30% operator stake in Sakhalin-1, with Russian company Rosneft (ROSN.MM), India’s ONGC Videsh (ONVI.NS) and Japan’s SODECO as partners.

Oil production at the Sakhalin-1 project fell to just 10,000 barrels per day (bpd) in July from 220,000 bpd before Russia invaded Ukraine.

NAVIGATING AN EXIT

Exxon has been trying to exit its Russia operations and transfer its role in Sakhalin-1 to a partner since March, after international sanctions imposed on Moscow.

Russia’s government and Exxon have clashed, with the oil producer threatening to take the case to international arbitration.

Exxon declined to comment on Friday’s decree.

Japan’s SODECO was not immediately available to comment, but an official of the industry ministry, which owns a 50% stake in the firm, said it was gathering information and talking with partners. Japan has stopped buying crude from Russia since June. read more

Exxon took an impairment charge of $4.6 billion in April for its Russian activities and said it was working with partners to transfer Sakhalin-1’s operation. It also reduced energy production and moved staff out of the country.

In August, Putin issued a decree that Exxon said made a secure and environmentally safe exit from Sakhalin-1 difficult. The U.S. producer then issued a “note of difference,” a legal step prior to arbitration.

Friday’s decree said the Russian government was establishing a Russian company, managed by Rosneft subsidiary Sakhalinmorneftegaz-shelf, that will own investors’ rights in Sakhalin-1.

Foreign partners will have one month after the new company is created to ask the Russian government for shares in the new entity, the decree said.

Putin used a similar strategy in a July decree to seize full control of Sakhalin-2, another gas and oil project in the Russian Far East, with Shell (SHEL.L) and Japanese companies Mitsui & Co (8031.T) and Mitsubishi Corp as partners.

Russia has approved applications by the two Japanese trading houses seeking to transfer their stakes to a new operator. read more

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Reporting by Reuters; Additional reporting by Yoshifumi Takemoto, Yuka Obayashi in Tokyo, Editing by Cynthia Osterman and Clarence Fernandez

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World

Ethiopia forms body to negotiate with rebellious Tigray forces

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ADDIS ABABA, June 14 (Reuters) – Ethiopia’s Prime Minister Abiy Ahmed said on Tuesday the federal government had formed a committee to negotiate with forces from the rebellious northern region of Tigray, in the first public confirmation of a key step towards peace negotations.

The nearly two-year conflict in Ethiopia, Africa’s second-most populous nation, has displaced more than 9 million people, plunged parts of Tigray into famine conditions and killed thousands of civilians.

“Regarding the peace … a committee has been established and it will study how we will conduct talks,” Abiy told parliament, the first time he has publicly referred to the body.

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The committee, headed by Deputy Prime Minister Demeke Mekonnen, has 10 to 15 days to hammer out details of negotiations.

Debretsion Gebremichael, chairman of the Tigray People’s Liberation Front (TPLF), said his group was prepared to participate in a “credible, impartial and principled” peace process and would send a delegation.

The TPLF – a former rebel army turned political party – dominated national politics for nearly three decades until Abiy’s appointment in 2018 reduced their rule to Tigray.

“We are not prepared to make secret deals or bargain away our principles for material inducements,” Debretsion said in an open letter posted on Twitter.

The TPLF accused Abiy of wanting to centralise power at the expense of the regions, while he said they were seeking to regain national power.

CONFLICT

Fighting erupted in Tigray in November 2020 and spilled over into the neighbouring regions of Afar and Amhara last year.

Troops from neighbouring Eritrea also entered the conflict in support of Abiy’s force. Eritrean and Ethiopian forces withdrew from most of Tigray in mid-2021 and the Abiy government declared a unilateral ceasefire in March. read more

Legislator Desalegn Chane said on Tuesday that negotiations should not exclude Amhara and Eritrean forces. Both fought on the side of the Ethiopian military, but faced mounting accusations of abuses, which they denied.

Last month, regional state media reported 4,000 people had been arrested in Amhara – including a prominent general, militia members and journalists. Analysts said it appeared that the central government was trying to reassert its authority over some Amhara factions; the government said the arrests were related to “illegal activities” and possible killings.

The war between the national government forces and its allies and the Tigrayan forces has upset Abiy’s plans to modernise Ethiopia’s sclerotic state-run economy.

Widespread reports of mass killings of civilians and sexual violence and allegations of ethnic cleansing also triggered Ethiopia’s suspension from a major trade agreement that gave Ethiopia preferential access to U.S. markets – a move the government said could cost the nation 1 million jobs.

The government has said the reports of rights abuses are exaggerated.

A U.N. investigation found all sides had committed abuses, but although the national rights body has released reports on abuses in Amhara and Afar, the full extent of killings and rapes in Tigray has yet to be documented.

(This story corrects attribution of TPLF reaction in paragraphs 5 and 7.)

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Reporting by Addis Ababa Newsroom; Writing by George Obulutsa; Editing by Gareth Jones and Deepa Babington

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World

Russia needs huge financial resources for military operation – finance minister

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Tanks of pro-Russian troops drive along a street during Ukraine-Russia conflict in the town of Popasna in the Luhansk Region, Ukraine May 26, 2022. REUTERS/Alexander Ermochenko

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May 27 (Reuters) – Russia needs huge financial resources for its military operation in Ukraine, Finance Minister Anton Siluanov said on Friday, putting the amount of budget stimulus for the economy at 8 trillion roubles ($120 billion).

Russia sent tens of thousands of troops into Ukraine on Feb. 24, which prompted the West to impose sanctions against Moscow that have already fanned inflation to near 18% and pushed the country to the brink of recession.

“Money, huge resources are needed for the special operation,” Siluanov said in a lecture at a Moscow financial university.

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President Vladimir Putin this week ordered 10% rises in pensions and the minimum wage to cushion Russians from inflation, but denied the economic problems were all linked to what Russia calls “a special military operation” in Ukraine. read more

The measures would cost the federal budget around 600 billion roubles this year and about 1 trillion roubles in 2023, Siluanov said earlier this week.

In a TV interview aired late on Friday, Siluanov said Russia will receive up to 1 trillion roubles in extra oil and gas revenues this year, funds which will be channelled to pay for increased social welfare payments.

Earlier on Friday, Siluanov also defended capital controls and asset freezes for foreign investors from “unfriendly” countries that Moscow imposed in response to Western sanctions.

“We will keep the investments that were made by foreigners from unfriendly countries in Russia in the same way as they will keep our gold and forex reserves,” Siluanov said, referring to the Western move to freeze around $300 billion worth of Russia’s international reserves it had accumulated over years.

Siluanov said restrictions on capital moves for foreign investors could remain in place until either sanctions are lifted or reserves are unfrozen.

($1 = 66.5790 roubles)

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Reporting by Reuters; Editing by Angus MacSwan and Sandra Maler

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World

India puts ‘new reality’ on display with Davos street show

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DAVOS, Switzerland, May 25 (Reuters) – Bright colours and bold logos proudly signal where India has set up base on the main street in Davos this year, as the country trumpets its pro-business and foreign investment drive.

Inside a pavilion on the Swiss Alpine resort’s Promenade street beneath an “India @ Davos 2022” logo, the federal government served up treats including ‘masala chai’ tea, ‘samosa’ snacks and other spicy delicacies.

Clustered around it are six Indian states with their own lounges, housed in what are usually high street shops.

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“It’s an Indian street, it should be called ‘Little India’. It shows the country is open for investments,” said Samir Saran of India’s Observer Research Foundation.

Indian Commerce Minister Piyush Goyal told Reuters that Prime Minister Narendra Modi had suggested bringing states together to showcase unity at the gathering of business and political leaders at the World Economic Forum.

“Investors love this kind of a messaging,” Goyal said.

While India has long had a presence at the World Economic Forum, several officials and attendees from Asia’s third-largest economy said it was not previously so prominent.

At the government’s base, food was being prepared by a team of 15 chefs who were flown in from India, along with 450 kilograms of vegetables and local spices, head chef Guru Nathan told Reuters, as people enjoyed a fragrant morning buffet.

“We were asked to keep the spice moderate so that everyone can enjoy (the food),” Nathan said.

Only a few steps down the road, Indian tech giants Infosys (INFY.NS), Wipro (WIPR.NS) and HCL Technologies (HCLT.NS) have set up their bases close to those of Alphabet’s (GOOGL.O) Google, Meta (FB.O) and Intel (INTC.O).

One state government official put the number of Indian officials attending Davos at more than 100, with scores of company executives and a handful of startups also present. Goyal estimated overall there would be 200 Indian participants.

“We have record numbers from India,” Sriram Gutta, head of India agenda at the WEF, said.

‘NEW REALITY’

Federal ministers have talked about India’s economic boom and the opportunities it offers at Davos.

Although Modi’s government has often faced criticism from foreign companies for announcing policies which they say are protectionist in nature and favour domestic companies, India recently reported its highest ever foreign direct investment inflow, which hit $83.57 billion in 2021-22.

After engaging regularly with Indian states on subjects such as agriculture technology, drones and electric vehicles, the WEF has gradually increased the number of invitations to them, Gutta said, adding that they “will continue to gain prominence”.

Even though they are run by different political parties, the states were seeking to project a united image and showcase their respective offerings for businesses, Deepak Bagla, CEO of federal investment promotion arm Invest India, told Reuters.

The southern state of Andhra Pradesh signed investment pacts worth a total of $16 billion for investment in renewables at Davos, while one official said Karnataka has held meetings with prospective investors. read more

“What this street really shows you is the new reality of India,” Bagla said.

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Reporting by Aditya Kalra; Editing by Alexander Smith

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US

Russia to pay Eurobonds in roubles as long as reserves remain blocked

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A view shows Russian rouble coins in this illustration picture taken March 25, 2021. REUTERS/Maxim Shemetov/Illustration/File Photo

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LONDON, April 6 (Reuters) – Russia edged closer to a potential default on its international debt on Wednesday as it paid dollar bondholders in roubles and said it would continue to do so as long as its foreign exchange reserves are blocked by sanctions.

The United States on Monday stopped Russia from paying holders of its sovereign debt more than $600 million from reserves held at U.S. banks, saying Moscow had to choose between draining its dollar reserves and default. read more

Russia has not defaulted on its external debt since reneging on payments due after the 1917 Bolshevik Revolution.

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“This speeds up the timeline around when Russia runs out of space on willingness and ability to pay,” one fund manager holding one of the bonds due for payment on Monday said.

The Kremlin said it would continue to pay its dues.

“Russia has all necessary resources to service its debts… If this blockade continues and payments aimed for servicing debts are blocked, it (future payment) could be made in roubles,” Kremlin spokesman Dmitry Peskov said.

With a total of 15 international bonds with a face value of around $40 billion outstanding, Moscow has managed to make a number of foreign exchange coupon payments on its Eurobonds before the United States stopped such transactions. read more

Russia’s finance ministry said on Wednesday it had to pay roubles to holders of its dollar-denominated Eurobonds maturing in 2022 and 2042 as a foreign bank had refused to process an order to pay $649 million to holders of its sovereign debt.

The finance ministry said the foreign bank, which it did not name, rejected Russia’s order to pay coupons on the two bonds and also did not process payment of a Eurobond maturing in 2022.

Russia’s ability to fulfil its debt obligations is in focus after sweeping sanctions in response to what Moscow calls “a special military operation” in Ukraine have frozen nearly half of its reserves and limited access to global payment systems.

‘ARTIFICIAL SITUATION’

JP Morgan, which had been processing payments on Russian sovereign bonds as a correspondent bank, was stopped by the U.S. Treasury from doing for the two payments due on Monday, a source familiar with the situation said. read more

JP Morgan (JPM.N) declined to comment.

Russia may consider allowing foreign holders of its 2022 and 2042 Eurobonds to convert rouble payments into foreign currencies once access to its forex accounts is restored, the finance ministry said.

Until then, a rouble equivalent of Eurobond payments aimed at bondholders from so-called unfriendly nations will be kept in special ‘C’ type accounts at Russia’s National Settlement Depository, the ministry added.

Russia has a 30-day grace period to make the dollar payment, but if the cash does not show up in bondholders account within that time frame it would constitute a default, global rating agencies have said.

Russia dismissed this as being a default situation.

“In theory, a default situation could be created but this would be a purely artificial situation,” Peskov said. “There are no grounds for a real default.”

Bondholders had been tracking bond payments since sweeping sanctions and counter measures from Moscow which have severed Russia from the global financial system.

Russia on Wednesday paid coupons on four OFZ treasury rouble bonds. These were once popular for their high yields among foreign investors, who are now blocked from receiving payments as a result of sanctions and Russian retaliation.

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Reporting by Reuters; Editing by Mark Potter, Hugh Lawson and Alexander Smith

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Business

Investors turn to crypto funds, companies as Russia-Ukraine crisis escalates

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NEW YORK, March 14 (Reuters) – Global investors are scooping up stakes in cryptocurrency funds and companies, as they seek exposure to a sector many believe could withstand the fallout from the Russia-Ukraine conflict.

Research firm Fundstrat, in its latest note to clients, said venture capital (VC) buyers invested around $4 billion in the crypto space in the last three weeks of February. VCs poured in another $400 million to start-ups in the sector last week, data showed.

The VC investment is consistent with broad weekly inflows. Since the beginning of the year, weekly investments in the industry have been averaging anywhere between $800 million to about $2 billion, Fundstrat data showed.

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New crypto funds also raised nearly $3 billion over the last two weeks as of Friday, the most so far this year.

“The conflict in Ukraine has weaponized our financial and digital economy and really accelerated blockchain adoption,” said Paul Hsu, founder and chief executive officer of Decasonic, a $50-million hybrid fund investing in both digital assets and venture capital. He added that there’s demand of up to $200 million to invest in his fund.

“We are seeing a re-allocation to crypto and blockchain away from real estate and bond funds, for instance, because of higher interest rates. I’ve seen this with my funds but unfortunately, because I’m closed-end, I cannot admit more funds nor investors,” Hsu said.

Refinitiv Lipper data showed that U.S. investors pulled a net $7.8 billion out of bond funds in the week to March 9. read more

Real estate funds saw net outflows of $707 million in the same period, after posting outflows worth $1.15 billion the previous week. read more

“Crypto native companies are still raising at very high valuations and many funding rounds are still oversubscribed,” said George Melka, chief executive officer at crypto broker SFOX. “In fact, crypto startup valuations are probably the highest I’ve seen.”

Bain Capital Ventures, a unit of private equity firm Bain Capital, for instance, announced early last week that it is launching a $560 million fund focused exclusively on crypto-related investment.

Crypto assets have outperformed traditional risk-on assets such as stocks during the crisis. Bitcoin rose 12.2% last month, while ether gained 8.8%. Since bottoming on Feb. 24 when Russia invaded Ukraine, the digital currencies have gained 14.5% and 13.5%, respectively, while the S&P 500 (.SPX) rose just 3.2%.

CAPITAL INFLOWS, HEDGE FUND RETURNS

Crypto investment products and funds saw $163 million in new institutional money in the two weeks to March 4, while inflows into blockchain equities totaled about $15.6 million, according to data from asset manager CoinShares.

The inflows of $127 million were the largest seen so far this year. Flows into the crypto sector turned positive in late January, after five straight weeks of outflows, CoinShares data showed.

Crypto fund returns have stabilized.

The BarclayHedge cryptocurrency traders index was down at 1.5% for the month of February, according to data posted on Monday, with 39 funds reporting or about 43% of the total crypto asset managers it tracks. In January the index fell nearly 13% and in December it fell 10%.

“There’s really no panic even with the Ukraine conflict,” said Joe DiPasquale, chief executive officer at BitBull Capital, which manages a crypto fund of funds and two hedge funds.

BitBull’s two hedge funds, which employ market-neutral strategies, were up on the year, DiPasquale said, benefiting from the recovery of bitcoin and ether in the month of February.

“People are starting funds, encouraged by the appreciation in prices over the last couple of years,” he said.

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Reporting by Gertrude Chavez-Dreyfuss; Editing by Alden Bentley and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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Russia counts on sanctions help from China; U.S. warns off Beijing

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A child holds the national flags of Russia and China prior to a welcoming ceremony for Russian President Vladimir Putin outside the Great Hall of the People in Beijing, China, June 25, 2016. REUTERS/Kim Kyung-Hoon

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LONDON, March 13 (Reuters) – Russia said on Sunday that it was counting on China to help it withstand the blow to its economy from Western sanctions over the war in Ukraine, but the United States warned Beijing not to provide that lifeline.

Russian Finance Minister Anton Siluanov said sanctions had deprived Moscow of access to $300 billion of its $640 billion in gold and foreign exchange reserves, and added that there was pressure on Beijing to shut off more.

“We have part of our gold and foreign exchange reserves in the Chinese currency, in yuan. And we see what pressure is being exerted by Western countries on China in order to limit mutual trade with China. Of course, there is pressure to limit access to those reserves,” he said.

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“But I think that our partnership with China will still allow us to maintain the cooperation that we have achieved, and not only maintain, but also increase it in an environment where Western markets are closing.”

Western countries have imposed unprecedented sanctions on Russia’s corporate and financial system since it invaded Ukraine on Feb. 24 in what it calls a special military operation.

Siluanov’s comments in a TV interview marked the clearest statement yet from Moscow that it will seek help from China to cushion the impact.

But U.S. National Security Adviser Jake Sullivan said Washington was warning China not to provide it.

“We are communicating directly, privately to Beijing, that there will absolutely be consequences for large-scale sanctions, evasion efforts or support to Russia to backfill them,” Sullivan told CNN.

“We will not allow that to go forward and allow there to be a lifeline to Russia from these economic sanctions from any country, anywhere in the world,” added Sullivan, who is due to meet China’s top diplomat Yang Jiechi in Rome on Monday. read more

Russia and China have tightened cooperation in recent times as both have come under strong Western pressure over human rights and a raft of other issues. Beijing has not condemned Russia’s attack on Ukraine and does not call it an invasion, but it has urged a negotiated solution.

Presidents Vladimir Putin and Xi Jinping met in Beijing on Feb. 4 and announced a strategic partnership they said was aimed at countering the influence of the United States, describing it as a friendship with no limits.

China is Russia’s top export market after the European Union. Russian exports to China were worth $79.3 billion in 2021, with oil and gas accounting for 56% of that, according to China’s customs agency.

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Reporting by Mark Trevelyan; Editing by Hugh Lawson

Our Standards: The Thomson Reuters Trust Principles.

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