ISLAMABAD - The ministry of finance has initiated the process for issuing sovereign Panda Bond in Chinese capital market to raise foreign exchange reserves.
The federal cabinet in December had approved a strategy to issue so-called ‘Panda bonds’ in the Chinese market to raise foreign exchange from global markets. The bonds will be denominated in Chinese yuan. Following the cabinet’s approval, the ministry of finance has sought the details of the Financial Advisors before March 20 who would guide and advice the government on the process.
“Finance Division, Government of Pakistan, intends to establish A Panda Bond issuance programme to issue Panda Bond in the Chinese capital markets. For the purpose, Finance Division solicits the services of financial advisor(s)/Lead Manager(s) through an open competitive process. Interested financial institutions are requested to participate in the engagement process. Participating financial institutions are expected to guide, advise, manage, coordinate and execute the whole range of activities associated with such issuances,” the ministry of finance stated.
An official of the ministry said that government is issuing the Panda Bond after holding different sessions of consultations with Chinese banks, investment groups, regulatory authorities in China and stock exchange and traditional financial advisers. However, he said that government has not decided the volume of the Panda Bond, as it will depend on the response of Chinese capital market. “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,” he said and added that bonds will be issued in several rounds and a good response is expected, considering the interest shown by Chinese banks and investment groups.
The size of the issue has yet to be determined, but a source in the finance ministry said it will be around $ 500 million to $1 billion. It will be in instalment but at least one tranche is expected during the current fiscal year. Finance Minister Asad Umar told the federal cabinet that the interest rate may range above 5.5% but the final price can only be determined at the time of launching the bond.
The PTI-led government is working on several options to raise foreign exchange reserves of the country. The government had approached friendly countries including Saudi Arabia, United Arab Emirates (UAE) and China for financing. Similarly, the government had also launched Pakistan Banao Certificate to provide opportunity to overseas Pakistanis with minimum investment requirement of $5,000 and without having any upper limit. The Pakistan Banao Certificates are available in three and five year maturities at profit rates of 6.25 percent and 6.75 percent per annum respectively. Minimum investment size is $5,000 with no upper limit.
The incumbent government after coming into power had approached Saudi Arabia, UAE and China for bailout packages. Saudi Arabia had announced $6 billion package for Pakistan, which included placing $3 billion cash deposits in the account of State Bank of Pakistan. In addition, KSA would also provide a one-year deferred payment facility for the import of oil, worth up to $3 billion. Meanwhile, the UAE had also placed one billion dollars in SBP’s account out of three billion dollars it committed.
