ISLAMABAD: Pakistan plans to launch a yuan-denominated Panda Bond by the end of the current fiscal year in May-June 2025 to enter into the Chinese market to raise $200 million in the first stage.

This development possessed significant importance mainly because it indicates that the country is heading towards diversifying its debt in different international currencies to meet its foreign obligations.

The Panda Bond is denominated in Chinese yuan (renminbi) and issued by a non-Chinese entity within the Chinese domestic bond market, essentially allowing foreign companies, governments, or institutions to access Chinese investors by selling bonds in the local currency, essentially giving them a way to tap into the Chinese market by raising capital in yuan. 

In 2024, the Panda bond issuance gained momentum and a total of 109 issuances were done to generate 194.8 billion Yaun ($26.7 billion) 2024 it is expected that the issuance of bonds in terms of size and volume will gain momentum during the calendar year 2025.  

Why is the issuance of panda bonds important for Pakistan?

Pakistan’s external debt and liabilities stood at $133 billion out of which Chinese debt hovered around $30-35 billion on all accounts. Keeping in view such a large size of Chinese debt, Pakistan decided to move towards generating Yuan-denominated debt. Although its size will be small, Pakistan will appear on the radar screen of Chinese investors. Pakistan and China had already struck an agreement in currency swaps but there is a need to explore more opportunities to reduce dependence on the domination of dollars.

In the past, Pakistan had restricted itself from launching Eurobonds and Shariah-compliant Sukuk bonds to raise dollar-based liquidity in the international market. Now the time has come to diversify available avenues by luring capital-flooded markets to fulfil its financial requirements.

The higher interest rates in international markets and deteriorated credit ratings in the past made it impossible for Islamabad to raise dollars through Eurobonds or Sukuk bonds in the last few years. It also made the Chinese market attractive for Pakistan’s policymakers to explore opportunities.

The launching of Panda bonds will help Pakistan to diversify its 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.

Pakistan desires to issue these bond prescriptions in different phases to fetch $500 million to $1 billion from the Chinese market in Yuan-denominated bonds. Still, it will largely depend upon the initial response from the Chinese market. Then the real potential will be explored in the next fiscal year 2025-26, if Pakistan receives an attractive response from the Panda bond market

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