Cabinet approves plan to float yuan-denominated ‘Panda bonds’

Published December 28, 2018
Finance Ministry spokesman says the Panda bond will help the government diversify the investor base of the capital market issuance and provide a source of raising renminbi. ─ Reuters/File
Finance Ministry spokesman says the Panda bond will help the government diversify the investor base of the capital market issuance and provide a source of raising renminbi. ─ Reuters/File

ISLAMABAD: The federal cabinet approved a strategy to issue so-called ‘Panda bonds’ in the Chinese market to raise foreign exchange from global markets, though the size of the issue has not been released at the moment. The bonds will be denominated in Chinese yuan.

The cabinet meeting headed by Prime Minister Imran Khan approved the strategy on Thursday.

Official Spokesperson to Finance Ministry Dr Khaqan Najeeb told Dawn that the Panda bond has been finalised “after several rounds of discussions with Chinese banks, investment groups, regulatory authorities in China and stock exchange and traditional financial advisers.”

“They will help government diversify investor base of capital market issuance and provide a source of raising renminbi (RMB).”

Size of issue not yet known

The spokesperson said the size, tenor and pricing would be determined on the market response at the time of issuance, which is to be done in several rounds.

“A good response is expected considering the interest shown by Chinese banks and investment groups,” the spokesperson added.

The size of the issue has yet to be determined, but a source in the finance ministry said it will be around $1 billion. It will be in instalments, the source said, adding it will provide the government a space to move and diversify from US dollars into RMB, as well as providing cover to pay for imports from China.

At the moment, a swap facility exists to settle payments between buyers and sellers in China and Pakistan, but it has seen virtually zero utilisation. It is not known yet how the funds raised from the Panda bond flotation will be utilised in bilateral trade between the two countries.

The Chinese yuan cannot be settle payments with countries other than China.

In 2013, the State Bank had purchased a $1.5bn worth of Chinese yuan and sold them in forex markets in the far east in exchange for US dollars to shore up the reserves.

That option may still be available, otherwise the government will have to play a more proactive role in urging local traders to use the yuan to pay for imports from China to make productive use of the proceeds of the Panda bonds.

Market sources have been expecting up to $2.2bn worth of Panda bonds to be floated in two separate flotations of late.

Published in Dawn, December 28th, 2018

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Military option
Updated 21 Nov, 2024

Military option

While restoring peace is essential, addressing Balochistan’s socioeconomic deprivation is equally important.
HIV/AIDS disaster
21 Nov, 2024

HIV/AIDS disaster

A TORTUROUS sense of déjà vu is attached to the latest health fiasco at Multan’s Nishtar Hospital. The largest...
Dubious pardon
21 Nov, 2024

Dubious pardon

IT is disturbing how a crime as grave as custodial death has culminated in an out-of-court ‘settlement’. The...
Islamabad protest
Updated 20 Nov, 2024

Islamabad protest

As Nov 24 draws nearer, both the PTI and the Islamabad administration must remain wary and keep within the limits of reason and the law.
PIA uncertainty
20 Nov, 2024

PIA uncertainty

THE failed attempt to privatise the national flag carrier late last month has led to a fierce debate around the...
T20 disappointment
20 Nov, 2024

T20 disappointment

AFTER experiencing the historic high of the One-day International series triumph against Australia, Pakistan came...