Pakistan to launch Panda Bond in Yuan currency

ISLAMABAD: First time in the country’s history, Pakistan on Thursday approved launching of Panda Bond in Chinese-denominated Yuan currency with possible transaction size equivalent to $500 million in two different tranches in order to finance its yawning trade deficit with Beijing.

The first tranche of Panda Bond is expected to fetch only $200 million equivalent of RMB for Pakistan and the generated Chinese currency’s tool will be used to finance increasing trade deficit with China. In the second tranche, the equivalent size of Panda Bond will yield $300 million for Pakistan’s struggling economy. Pakistan’s trade deficit with China stood at around 12 billion dollars per annum and Islamabad is asking for Asean level tariff reduction on its exportable items. China has recently granted market access during the premier’s visit helping Islamabad to boost its exports to China.

The Ministry of Finance Adviser and official spokesman Dr Khaqan Najeeb, when contacted, said the government is successfully continuing its multi-pronged approach for bridging foreign financing needs and building foreign exchange reserves. He said Panda Bond approval by the cabinet is a part of this strategy. He said this is a well thought out decision after several rounds of discussions with Chinese banks, investment groups, regulatory authorities in China and stock exchange and traditional financial advisers.

Panda bonds, he said, will help government diversify investor base of capital market issuance and provide a source of raising Renminbi.

The size, tenor and pricing would be determined on the market response at the time of issuance. The issuance will be done in several rounds. A good response is expected considering the interest shown by Chinese banks and investment groups, he added.

The sources said that first of all, this idea was floated during the last PML-N government but the Debt Office in the Ministry of Finance had always cautioned the government to review fluctuation of Chinese currency versus US Dollar before moving ahead as it should be determined that in case of losses who was going to absorb it keeping in view the fluctuating currency rates.

Top economist Dr Ashfaque Hassan Khan had proposed to the PTI government to launch RMB-based bond several months back, but the government wasted time and now decided to move ahead. “The timing of launching the bond has importance and now the government has decided to explore this option in second half of the current fiscal year,” said the sources.

“The Chinese Renminbi-denominated Panda Bond will be accomplished in two tranches in Shanghai (China) and expected to fetch half a billion dollars,” top official sources of the Finance Ministry told The News.

In the first tranche, the RMB-based Panda Bond will fetch equivalent to $200 million and in the second tranche the transaction can go up equivalent to $300 million within the ongoing fiscal year.

The China’s bond market is the third largest in the world (behind the United States and Japan) and has an estimated market size of $11.8 trillion. Panda bonds, Yuan-denominated debt issued by foreign borrowers, make up a small fraction of China’s $11 trillion dollar onshore bond market.

The official said that the government decided to move ahead with RMB-based Panda Bond for using this tool for repayment to Chinese loan as well as for financing the trade deficit.

Pakistan has so far utilised over $26 billion under China Pakistan Economic Corridor (CPEC) out of which $6 to $7 billion was utilised through government to government (G to G) loans while the remaining was done through the IPP mode under private sector arrangements. The overall obligations in terms of dividends, repayment of loans and other repayments were estimated at around $42 billion over the next 20 years, however, official circles made points that the private sector obligations could not be calculated as liability on the shoulders of the government. “If private sector loans are calculated then the US economy might have drowned into debt trap,” said one top official of the Planning Commission, but another official said that it was overall obligations on the state and there was need to portray realistic picture on economic front.