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 $500 million to $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 $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.