ISLAMABAD – Pakistan has planned to tap Chinese investors by issuing $300 million in Panda Bonds. Beijing’s domestic bond market is the among top three in world.
Islamabad is now interested in issuing up to $300 million in panda bonds this year, aiming to lure Chinese investors. Panda bonds are denominated in Chinese yuan but issued by foreign entities, such as governments, multilateral agencies, and companies.
In an interview with Bloomberg, Finance Minister Muhammad Aurangzeb said the government is looking to issue Yuan-denominated debt to diversify funding sources and access new investors.
The country’s new finance czar acknowledged that Islamabad should have considered this option earlier, given China’s significant bond market. The initial panda bond sale is expected to be around $250-300 million, with the possibility of further issuances.
Pakistan’s cash reserves are sufficient to meet its debt obligations without exerting pressure on the currency, he said, predicting that Pakistani rupee will remain stable, barring any unforeseen events, such as fluctuations in oil prices.
Panda Bonds
Panda bonds are renminbi-denominated bonds issued by foreign entities in the onshore Chinese market, providing a unique way for international companies, governments, and financial institutions to raise funds in China.
The market for panda bonds initially saw limited activity, with only two deals in the first decade after its inception. However, the market gained momentum in recent times, with more issuers tapping the market.
To issue panda bonds, foreign issuers must be high-profile and quality issuers, as Chinese regulators prefer to build the market with premium names.
Secondly, the application process involves self-assessment and informal discussions with regulators, followed by formal meetings. All documents must be in simplified Mandarin and governed by Chinese law, which can be a challenge for non-Hong Kong issuers.
Financial accounts must be reported under Chinese Generally Accepted Accounting Principles (GAAP) and audited by a Chinese-registered firm. However, a reciprocity agreement with Hong Kong recognizes the equivalence of their accounting standards and auditors.
Despite several concerns, Panda Bonds offer standardized product with strong secondary liquidity. While China’s regulators are prudently developing the market, the roadmap for issuing panda bonds is clear for issuers willing to navigate the process.
