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Cabinet approves plan to float yuan-denominated ‘Panda bonds’
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 $2.2bn worth of Panda bonds to be floated in two separate flotations of late.
Published in Dawn, December 28th, 2018
Comments (15) Closed
Here come Chinese..
Value of Chinese Yuan has fallen (against the dollar) by about 10% after the 'US-China trade war'.
The information has not been released because the size of the bond issue has not been decided yet.
Yuan value fall 10% against US$ after the US-China trade war.
Wonder how America would react..
very positive development.
This is another method of raising money. So far we have seen funds received from abroad, IMF and now bonds. What about the strategy for industrial development.
Call loan by any other name it will just as burdensome.
Loan generation scheme
Where's the downside? We have an enormous trade imbalance with the Chinese and are likely drowning in Chinese currency.
Cabinet approval doesn't mean squat - the issue has always been whether there is a market for Pakistan debt and what interest rate will be required. BTW - the Yen isn't considered hard currency anymore than the Rupee.
Good decision by the Cabinet. Let's replace the use of dollar with other currencies in the trade with others.. This move will be more successful if other countries like Russia, China, Iran,Arab states, Turkey etc follow the same in their trade with each other.
This is a very good move. The Pakistani Government should also discuss with China the possibility of having a single currency for our two countries. This is what the EU countries have done. That way we can benefit from the reminbi currency, and our economy will strengthen.
now chinese are entering through currency.
But no economic crisis at all.