Portugal Sells Panda Bonds – In Eurozone First

Looking to establish itself as the gateway for Chinese investments into Europe, Portugal takes the lead with the sale of Panda Bonds, raising RMB 2bn.

Already one of Europe’s biggest recipients per capita of Chinese investments, Portugal exceeded expectations at the end of May, selling so-called “panda bonds”,  in 3-year notes with a yield of 4.09 percent. Orders for the bonds came in at over three times the amount on offer – raising more than 2 billion yuan (or renminbi), the equivalent of more than 260 billion euros.

Panda bonds are yuan-denominated sovereign debt from a non-Chinese issuer, that is sold in China. The proceeds from these bonds are expected to be used for a variety of governmental projects, including future Belt and Road Initiatives, which is China’s ambitious global infrastructure and investment development strategy. These bonds are only a small portion of the estimated total 16 billion euros in government bonds and bills that Portugal plans to issue this year.

The plan to launch these bonds is the culmination of over two years of planning to broaden Portugal’s investment base, as well as market Portugal as a gateway for Chinese investment into Europe.

During these two years, Portugal presented its case to investors in Beijing, Shanghai and Singapore. The Bank of China and HSBC were joint lead underwriters for the transaction, and Portugal’s CaixaBI acted as a financial adviser. The project picked up speed after a visit last December to Portugal by Chinese President, Xi Jinping.

The bond was aimed primarily at Chinese institutional investors, and makes Portugal the first Eurozone country to tap China’s bond market. Austria is taking steps to follow suit soon.

While Portugal is the first Eurozone sovereign state – and the only former bailout state – to issue panda bonds, it is the third EU country after Poland and Hungary to issue renminbi-dominated government debt on the Chinese market. Poland issued them in 2016, and Hungary in 2018.

China views Portugal as an important trade partner due to its location by the Atlantic Ocean, and a gateway for Chinese investments into Europe. Copyright: joyfull /

The sale is part of an ongoing bid to expand land and sea links between Asia, Africa, and Europe. China views Portugal as an important trade partner due to its location by the Atlantic Ocean, making it the closest point in Europe for ships making their way across from Asia, via the Panama Canal.

And yet, this is not the first time China has sought to make a large investment in Portugal. State-owned group, China Three Gorges previously launched a bid for Utility EDP, which is Portugal’s largest company by assets – in which Three Gorges also already owns a 23 percent stake. EDP’s shareholders, however, blocked the bid in April.

These bonds translate into higher yields for Portugal, but the government considers the trade-off worth it to enter the high-liquidity market. Ricardo Mourinho Félix, secretary of state for finance, spoke at a conference earlier in May, saying that the higher interest rates Portugal would pay on renminbi-denominated bonds, compared with the negative rates on its equivalent euro debt, were part of the cost of “entering a big new market with high liquidity.”

Cristina Casalinho, head of the IGCP, Portugal’s public debt agency, said in late May that although Portugal would pay a “significantly higher” interest rate on the Chinese bonds, the issue would pay off over the long term. “China has the highest savings rate in the world”, and in the future was likely to play an important role in international debt markets, she told a Lisbon conference.

“With this successful transaction, Portugal has accessed the third largest bond market in the world to further diversify its investor base”, the IGCP, Portugal’s public debt agency, said in a statement, shortly after the sale.

The initial price guidance predicted the yield of 3.9 to 4.5 percent, but IGCP said that strong demand from investors allowed for offers closer to the lower end of that range.

Portugal was one of a series of Southern EU states that underwent a bailout following the Eurozone crisis. However, since its exit from the economic adjustment programme in 2014, Portugal has had one of the fastest growing economies in the Eurozone. Other EU states, including Italy and Germany, have meanwhile seen their domestic economies struggle.

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B. Lana Guggenheim

Lana is a freelance journalist based in New York City. She has a M.Sc. in International Conflict from the London School of Economics and Political Science. She has worked as an analyst, reporter, and editor, covering extremism, culture, economics, and democracy.

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