Pakistan set to launch inaugural Panda bonds to attract Chinese investors

ISLAMABAD: Pakistan is gearing up to issue its first-ever Panda bonds before the end of this year, in a move aimed at diversifying its funding sources and strengthening economic ties with China. According to Bloomberg, the country plans to raise around $250 million through yuan-denominated debt, marking a significant shift in how it seeks foreign financing.

The bonds will be offered through a private placement on China’s national interbank bond market, accessible only to qualified institutional investors. They are expected to carry a coupon rate between 3 and 4 percent per year, with a maturity period of three years.

To ensure a smooth launch, a consortium of advisers and underwriters, including China International Capital Corporation Ltd and Pakistan’s Habib Bank Ltd, has been tasked with structuring the deal.

Turning to new financing avenues

Pakistan’s decision to enter the Panda bond market comes at a time when several emerging economies are looking towards China for funding. This shift follows growing uncertainty over US trade policies and increasing caution among global investors about holding dollar assets.

As a central player in China’s Belt and Road Initiative, Pakistan has already received billions of dollars in loans and infrastructure investments from Beijing over the past decade. However, after facing a near-default crisis in 2023, the government is now seeking fresh avenues to rebuild its financial buffers and attract more stable, long-term funding.

Officials have indicated that this will not be a one-off move. The inaugural Panda bond sale is expected to be followed by additional issuances, depending on how investors respond to the first tranche.

Ratings upgrade but challenges remain

While Pakistan has faced difficulties in securing external funding in recent years, its outlook has slightly improved. S&P Global Ratings recently upgraded the country, signalling some recovery in market confidence. Even so, Pakistan’s sovereign rating remains below investment grade, which makes attracting international investors more challenging and often more expensive.

To address this, the government has reportedly approached the Asian Infrastructure Investment Bank and the Asian Development Bank for an enhancement guarantee, which could make the bonds more appealing by lowering perceived risk. Neither of the banks has commented publicly on the matter so far.

If successful, the launch of Panda bonds could mark an important step for Pakistan as it works to rebuild trust among investors, diversify its funding options and gradually reduce reliance on dollar-denominated debt. For policymakers in Islamabad, the move represents not only a financial strategy but also a symbolic gesture of strengthening the country’s partnership with China at a crucial time.

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