ISLAMABAD: Pakistan intends to tap China’s growing “Panda Bond” market, which enables foreign issuers to raise yuan-denominated bonds, and has invited proposals from financial institutions to manage the issue, according to a finance ministry announcement on Friday.
An advertisement in the press invites bids from institutions to act as financial advisers and lead managers of the issue, with bids due to be submitted by March 20.
There was no indication of the expected size or timing of the issue, but a panda bond has long been expected from Pakistan, which is in talks with the International Monetary Fund (IMF) over a bailout to head off a looming balance of payments crisis.
The country’s foreign exchange reserves are currently just over $8 billion, enough for only around two months’ of imports.
Last year, the head of Pakistan’s largest bank said he expected a panda bond equivalent to $1.5-2 billion as soon as possible after an agreement with the IMF on what would be Pakistan’s 13th bailout since the 1980s.
China is now Pakistan’s largest trading partner and Islamabad has been looking to diversify its borrowing from US dollars. Many foreign borrowers have been deterred from raising panda bonds because of red tape and liquidity problems, but the market has expanded sharply since access was widened in 2015.
A report in the Pakistani newspaper Tribune last year said the issue size would likely be between $500 million and $1bn with an interest rate of above 5.5 per cent.
Pakistan, facing slowing growth and a widening budget deficit in addition to its foreign payments woes, is preparing for a visit by Saudi Crown Prince Mohammad bin Salman who is expected to sign off on billions of dollars in energy investments.
Islamabad, under pressure to boost its tax take, increase exports and stop propping up its currency, has already secured $6bn from Saudi Arabia in loans and credit arrangements and has agreed similar sums from the UAE.
However agreement with the IMF has been held up by Islamabad’s concerns that a rapid implementation of fund-approved reform programme could derail its economy.
Published in Dawn, February 16th, 2019