Pakistan to float first Panda Bonds in Chinese market

Pakistan’s federal cabinet on Thursday approved the summery of first Panda Bonds that will be issued for the next three years in the Chinese market to generate financing in Yuan. (Photo courtesy: Press Information Department)

• To launch initiative within the next three months
• Experts believe move will provide temporary economic relief to the country

KARACHI: With an aim to generate $500 million to $1 billion worth of financing, Pakistan’s federal cabinet on Thursday agreed to float the first Panda Bonds in the Chinese market within the next three months.
“This will be the first time in the history of Pakistan that the country will enter the Chinese market,” Information Minister Fawad Chaudhry said while addressing a news conference in Islamabad after the meeting.
Talking to Arab News, Dr. Khaqan Hassan Najeeb, Spokesperson of the Ministry of Finance said: “The size, tenure, and pricing of the bonds will be determined on the basis of the market response at the time of their issuance.” He also maintained that the government was hoping to have several rounds of issuance.
Faced with financial shortages to fill an external payments gap, the government has adopted a multi-pronged approach to address its financing needs and build foreign exchange reserves, officials from the finance ministry said.
“The idea of issuing these bonds is a well thought out decision since it was taken after discussions with the Chinese banks, investment groups, and regulatory agencies,” Dr. Najeeb added.
“The bonds will also help the government diversify the investor base of the capital market issuance and provide a source for raising Renminbi,” he said, adding that the “process will start in the next two to three months”.
Pakistan expects a good response from Chinese investors, considering the interest of various Chinese banks and investment groups in the proposal. “It will be interesting to see how much our finance division manages to generate after an open bidding process, and how it determines the exact size, tenor, and price on the basis of the market response at the time of issuing these bonds,” Dr. Ikram ul Haq, an expert on economic and taxation issues, said.
At this stage, Islamabad plans to float the bonds in three phases, with a target of $500 million to $1 billion in the first year. The process is expected to continue for at least three years, targeting up to $2 billion.
Pakistan is currently negotiating with friendly countries, international donors, and lending agencies, including the International Monetary Fund (IMF), to meet its financial requirements. According to Finance Minister Asad Umar, Pakistan wants to avoid the IMF since it is likely to set tough conditions ahead of the deal.
However, experts believe that the country is trying to explore the option of Panda Bonds after it found it difficult to secure a package from the IMF, in addition to substantial support, grant, and loans from China too. It is pertinent to note that Sri Lanka, the Philippines, the UAE, Hungry, and Poland have successfully issued such bonds in the past. 
“For Pakistan, it will be a temporary relief on the balance-of-payments front, though it will further increase our already unsustainable foreign debt. The funding trade deficit with China through Panda Bonds will not solve our fundamental problem of building an economy that gets rid of imports even for exports,” Dr. Haq said.
He continued that there were not too many short-term quick fixes for Pakistan anymore. “We need to go for fundamental and structural reforms and then seek support from the IMF, Asian Development Bank (ADB), and World Bank (WB),” he added.