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Pakistan approves issuance of renminbi-denominated bonds

PTI Islamabad | Updated on December 28, 2018 Published on December 28, 2018

China, in recent years, has become Pakistan’s largest trading partner and also the country with which it has the highest trade deficit   -  Reuters

The ‘Panda Bonds’ was approved in a Cabinet meeting, led by Prime Minister Imran Khan recently

Pakistan’s cabinet has approved the issuance of first-ever renminbi-denominated bonds to raise loans from China’s capital markets, as the country moved a step forward to give the Chinese currency a status at par with the US dollar.

The ‘Panda Bonds’ was approved in a Cabinet meeting, led by Prime Minister Imran Khan, on Thursday, The Express Tribune reported.

The Finance Ministry did not seek the Cabinet’s nod for the size of the bond, but it expects to raise USD 500 million to USD 1 billion in various tranches, of which at least one is expected in the current fiscal.

Finance Minister Asad Umar told the Cabinet that the interest rate may be over 5.5 per cent but the final price can only be determined at the time of launching the bond, it said.

The Philippines has also raised RMB1.46 billion through renminbi-denominated bonds with an interest rate of 4.75 per cent. Since the Asia-Pacific nation has better credit rating than Pakistan, the country will have to pay nearly 1 per cent 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 dollar-denominated Eurobonds, worth USD 3 billion.

The government successfully continues its multi-pronged approach for bridging the foreign financing needs and building foreign exchange reserves, Finance Ministry spokesperson Najeeb Khaqan was quoted as saying in the report.

He said the approval of Panda Bond’s by the Cabinet was part of the strategy.

This is a well-thought-out decision after several rounds of discussions with Chinese banks, investment groups, regulatory authorities, stock exchange and traditional financial advisers, the minister added.

Khaqan said the bonds will help the government diversify the investor base of capital market issuance and provide a source of raising renminbi (RMB).

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 Imran Khan-led Pakistan Tehreek-e-Insaf (PTI) government has been struggling to arrange foreign loans to meet the country’s external financing needs for this fiscal.

So far, Saudi Arabia has disbursed USD 2 billion. Yet the country’s foreign currency reserves, held by the State Bank of Pakistan, slipped to USD 7.46 billion as of December 21, down by USD 591 million as compared to USD 8.1 billion in the previous week.

As part of the long-term plan of the China-Pakistan Economic Corridor (CPEC), both countries had decided to use renminbi (RMB) as the second international currency to lessen Pakistan’s reliance on dollar.

“Pakistan shall promote the construction of Gwadar Port Free Zone and explore RMB offshore financial business in Gwadar Free Zone,” according to the plan. Both countries shall strengthen financial cooperation between their free trade zones and explore the formation of an RMB backflow mechanism, it adds.

The long-term guiding document also emphasises that the countries will assign the foreign currency to domestic banks through credit-based bids to support financing for projects along the CPEC and promote settlements in RMB and Pakistani rupees to reduce the demand for third-party currency.

China, in the recent years, has become Pakistan’s largest trading partner and also the country with which it has the highest trade deficit. The reliance on Chinese currency would help finance the trade deficit from Chinese sources.

The plan further says that Pakistan’s federal and provincial governments, enterprises and financial institutions will explore effective ways to conduct RMB financing in Mainland China, Hong Kong and other offshore RMB centres.

Due to delay in finalisation of an International Monetary Fund programme, the federal government is looking for various alternatives to meet the external financing needs, which are now estimated at USD 22 billion.

Umar on Thursday also chaired a meeting to review the existing facilities for import of petroleum products in the country. The existing facilities from the International Islamic Trade Finance Corporation were also discussed. It was agreed that full utilisation of the USD 4.5 billion facility over a three-year period starting July 2018 must be ensured.

Pakistan also expects a USD 274 million Saudi oil facility to become operational from next month.

Published on December 28, 2018
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