New Finance Minister of Pakistan, Muhammad Aurangzeb, indicated in an interview recently that he hopes to issue up to USD 300 million of panda bonds for the first time this year, due to issue renminbi-denominated bonds would allow Pakistan to diversify its funding sources and reach investors in new markets.
Panda bonds are bonds denominated in renminbi, or Chinese yuan, but issued by foreign borrowers, including companies, multilateral agencies, and governments. Frankly, we should have considered this a long time ago. China is the second largest and deepest bond market in the globe, and leveraging the Chinese bond market is the right thing for Pakistan given that it has issued dollar bonds and Eurobonds.” The finance minister said that the first batch of panda bond issuance will be approximately USD 250 million to USD 300 million, as well as further issuances will follow.
Aurangzeb said that the government’s cash balances were strong enough, and it was able to pay its debts on time. The payments were unlikely to put pressure on the currency, and he expects the rupee to remain stable, he added.
In a global context, onshore renminbi bonds saw record issuance in 2023, as the market continues to develop. China’s Panda bond market is gaining momentum and attracting new issuers, thanks to lower funding costs and a policy push.
China’s interbank market
Issuance of Panda bonds by offshore borrowers in China’s interbank market reached RMB 111.7bn (USD 15.3 billion) in the first nine months of 2023, a record for the period, according to data from the National Association of Financial Market Institutional Investors (NAFMII). The amount has already exceeded the full-year total of RMB 80.5 billion in 2022.
landmark deals include the first African sovereign Panda bond, from the Arab Republic of Egypt, as well as a debut offering by German carmaker Volkswagen. Despite the surge in issuance volume, the Panda bond market is currently only composed of a relatively small portion of China’s bond market, signaling strong potential for growth. As China further opens its capital market, related experts expect more multinational corporations and international investors will pay attention to the potential of the Panda bond market as the liquidity and depth of the market further build-up.
“We’ve seen the increasing usage of RMB as cross-border payments, albeit slowly, as more countries are trying to reduce their dependence on the US dollar. In the long run, it will support the demand for RMB assets and funding,” said Ivan Chung, a Moody’s associate managing director. According to data from payment network Swift, the renminbi is the fifth most active currency for global payments by value, with a share of 3.71% in September 2023.