Russian Firms Test Non-Dollar Deals to Sidestep US Sanctions

Several major Russian companies are exploring ways to do deals abroad without using dollars, spurred on by a U.S. threat to broaden sanctions that have impeded access of some Russian firms to the international banking system.

The Kremlin has been pushing companies to conduct more deals using other currencies to reduce reliance on the dollar.

Russian Alrosa, the world’s biggest producer of rough diamonds in carat terms, said it had completed a pilot deal with a Chinese client using yuan in the summer and another non-dollar transaction with an Indian client.

Other companies working on similar transactions include energy firm Surgutneftegaz, agricultural company Rusagro and miner Norilsk Nickel.

Russia’s central bank said this week the amount of non-dollar dealings was growing, with the share of rouble settlements in the Russia-China and Russia-India goods trade now between 10 and 20 percent.

The share was higher in the service industry, it added.

But there are limits to how much business can be shifted.

Major companies still rely heavily on dollar deals and most of Russia’s foreign earnings come from oil sales priced in dollars.

In addition, foreign banks with major U.S. activities may still be wary of business with any entity under U.S. sanctions even if transactions are not in dollars, bankers say.

The United States and its allies imposed sanctions on Russia in 2014 over Moscow’s annexation of Crimea. Washington said in August more measures could follow, after accusing Moscow of using a nerve agent against a former Russian agent and his daughter in Britain.

The new steps, which could be announced in November, may target dollar dealings, U.S. lawmakers have said.

Speed helps

One challenge facing companies dealing in the rouble is the Russian currency’s volatility. Between April 6 and 11, after Washington imposed sanctions on Russian billionaire Oleg Deripaska and some of his companies, the rouble lost almost 13 percent of its value against the dollar.

Alrosa said it avoided the fluctuation risk by completing the Chinese deal in a day. U.S. dollar deals tend to take longer due to associated compliance checks required.

“An increase in the speed of operations is an advantage in such an operation,” the company said in an emailed statement.

Alrosa did not give a value for its China and India deals but said the Chinese buyer had bought a lot at its auction of diamonds of 10.8 carats or larger in Hong Kong. Alrosa data indicates that its lots are on average worth about $100,000.

Alrosa said the banker for its Chinese deal was Shanghai office of VTB, Russia’s second-largest bank. An industry source, asking not to be named, said Russia’s biggest bank lender Sberbank worked on the Indian deal.

VTB and Sberbank declined to comment.

The Chinese client settled its purchase in yuan, which VTB converted into roubles and transferred to Alrosa.

“We carried out the transaction itself in one day, in several hours,” Alrosa said, adding that on this occasion the currency move was in the client’s favor.

No currency hedging was required because of the speed of the deal, the company said, but the client had to open an account in VTB’s branch in Shanghai to complete the transaction.

Alrosa said it was also considering settlement for future deals in Hong Kong dollars, adding that other Chinese clients had shown interest in non-dollar transactions.

Non-dollar limits

But there are limits on how much of Alrosa’s business can switch to other currencies. China accounts for just 4 percent of its sales, while India accounts for 17 percent.

Among initiatives by other Russian firms, Surgutneftegaz has been pushing buyers to agree to pay for oil in euros instead of dollars, Reuters reported in September.

Russian farming conglomerate Rusagro told Reuters that some of its trading operations were in yuan and said this would increase with the expansion of business with China.

Russian nickel and palladium producer Norilsk Nickel said it was discussing the option of rouble payments with foreign customers which have rouble revenue, although it said it had not secured deals under those terms.
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