Pakistan set to issue 'Panda bond' in Chinese currency.

Byline: Shahbaz Rana

ISLAMABAD -- The federal cabinet on Thursday approved the issuance of Pakistan's first renminbi-denominated bonds to raise loans from Chinese capital markets, as the country gradually moves towards giving the Chinese currency a status at par with that enjoyed by the US dollar.

The cabinet approved the issuance of the maiden renminbi-denominated 'Panda Bonds' during its meeting presided over by Prime Minister Imran Khan. The Finance Ministry did not seek the cabinet's nod for the size of the bond at this stage, although it expects to raise $500 million to $1 billion in different tranches. 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 Philippines has also raised RMB1.46 billion through renminbi-denominated bonds at an interest rate of 4.75%. Since the Asia Pacific nation has better credit rating than Pakistan, the country will have to pay nearly 1% higher.

The approval for issuing bonds in the Chinese capital markets came on the heel of the Finance Ministry's decision to delay issuance of US dollar-denominated Eurobonds worth $3 billion.

The government successfully continues its multipronged approach for bridging the foreign financing needs and building foreign exchange reserves, said Dr Najeeb Khaqan, the spokesperson for the Finance Ministry, while commenting on the development. He said that the Panda Bond's approval by the cabinet was part of this strategy. This is a well-thought-out decision after several rounds of discussions with Chinese banks, investment groups, regulatory authorities and stock exchange and traditional financial advisers, he added.

Dr Khaqan said the bonds will help the government diversify the investor base of capital market issuance and provide a source of raising renminbi. The size, tenure and pricing would be determined on the basis of market response at the time of issuance, he added.

The spokesperson said that the bonds will be issued in several rounds and a good response is expected, considering the interest shown by Chinese banks and investment groups.

The Pakistan Tehreek-e-Insaf government has been struggling to arrange foreign loans for meeting the county's external financing needs for this fiscal year. So far, Saudi Arabia has disbursed $2 billion. Yet the official foreign currency reserves...