Cash & Liquidity ManagementInvestment & FundingCapital MarketsPoland eyes China for panda bonds

Poland eyes China for panda bonds

A deal between the country’s finance ministry and the Bank of China will see over US$450m of bonds issued in mainland China over the next three years.

Poland is ready to become the first European nation to issue yuan (CNY)-denominated debt in China, following a visit to the country by Chinese president Xi Jinping last week.

Poland’s Ministerstwo Finansów (Ministry of Finance) signed a deal with the Bank of China to issue CNY3bn (US$452m) worth of so-called ‘panda bonds’ in mainland China over the next three years.

Panda bonds are CNY-denominated debt sold in China by foreign issuers; first launched in October 2005 when the International Finance Corporation and the Asian Development Bank issued 10-year bonds.

To date, more than CNY30bn of panda bonds have been sold and the World Bank (WB) estimates that the market could grow more than tenfold over the next five years to surpass CNY320bn.

Wang Jun, an economist at the China Centre for International Economic Exchanges (CCIEE) told China Radio International (CRI) that panda bonds are becoming popular for several reasons. “The International Monetary Fund (IMF) included the renminbi (RMB) into its special drawing rights (SDR) basket of currencies last year, becoming a catalyst for the booming panda bond issuance,” he said

“The market liquidity in China has remained solid in recent years, with lower bank reserve requirement ratios and interest rates, which has made the Chinese market more competitive in terms of financing costs. For bond issuers, this means more financing channels and optimised financing structures, as well as a diversification of investors.”

Analyst Chen Xi at ratings firm China Bond Rating believes that panda bonds are a good way for the Chinese government to open up its financial market. “More panda bonds being issued will bring much closer connection between China’s financial market and the outside world and during this process the significance of the Chinese financial market will become more prominent in the world.”

However, Russia’s deputy finance minister, Sergei Storchak, has said that his country is not yet prepared to issue panda bonds. “For any issue we need infrastructure; we don’t have it yet,” he told reporters at the weekend. “There should be infrastructure on both sides, it is being prepared. Technically we are not yet ready.”

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