Panda bond coming soon to diversify sources of funding
Quebec is working toward its first sale of debt denominated in China’s currency, with an issue likely months away, Finance Minister Carlos Leitão said.
Canada’s second biggest provincial issuer is leaning toward selling so-called panda bonds, which are denominated in yuan and sold in mainland China, to diversify its sources of funding, Leitão said Thursday. British Columbia, which counts a sizable population of Chinese origin, is the only Canadian province to have tapped the panda bond market so far.
A sale of panda bonds “will happen in the short term,” Leitão said in a telephone interview. “I can’t say exactly how long it will take, but the regulatory and bureaucratic process is under way. It’s not a matter of years, it’s a matter of quarters.”
Montreal-based National Bank of Canada became the first North American bank to issue debt in China’s domestic market and has issued two bonds totalling 4.1 billion yuan (US$650 million) since
2016.
Leitão met with Chinese bank officials and investors during a trip to Asia in January, and there is mutual interest in making a sale happen, he said. He declined to say whether the province has already picked banks for a panda bond issue.
Chinese authorities “are very interested in having issuers of our quality,” Leitão said. “British Columbia is already there, and they want even more issuers of this calibre. We are interested because we think the Chinese bond market will grow rapidly. It will give us another avenue for the next five, 10 or 15 years.”
Quebec plans to borrow $13.4 billion in the fiscal year that starts April 1, down from $17.9 billion in 2017-18, Leitão said Tuesday as he introduced the province’s 2018-19 budget. In the four-year period ending in March 2023, annual borrowings will average $18.7 billion.
About 40 per cent of Quebec’s borrowings this fiscal year have occurred abroad — twice the average of the past decade. Quebec typically issues bonds for $500 million in Canada and relies on international markets for larger sizes.
To eliminate any currency risk, Quebec immediately swaps proceeds back into Canadian dollars whenever it issues debt on international markets.
That strategy would also apply for panda bonds, Leitão said.
“We always swap the funds back into Canadian dollars, and the people from the Chinese central bank understand this very well,” he said. “There is no ambiguity.”