PH’s Panda bonds shake up international market

The Philippines’ inaugural issue of Panda bonds last March 20 shook up the renminbi-denominated market with an “exceptionally tight debut” that marked the largest oversubscription ever of any sovereign Panda bond float, according to an International Financing Review (IFR) Asia report.

IFR Asia said the Philippines set a record in the Panda bond market, as almost 90 percent was cornered by offshore or overseas buyers, helping the Philippines “smash through pricing expectations” and prompting other issuers grappling to understand this “achievement” and wondering why they had to pay higher spreads on their own floats.

The final pricing on the Philippines’ Panda bonds “represented a spread of only 35 basis points over the three-year notes of China Development Bank (rated Aa3 by Moody’s and AA- by Standard and Poor’s), and no premium at all over the 10 billion renminbi threeyear issue of Central Huijin, a unit of sovereign wealth fund China Investment Corp., also priced at five percent last (March 16),” the IFR Asia report said.

This means that the three-year Philippines’ maiden Panda bond issue was above the benchmark rate, with overwhelming demand pushing the coupon rate to its lowest at five percent.

“Of the five sovereign Panda bond issuers so far, only South Korea, rated five to six notches higher than the Philippines, was priced at a tighter spread over CDB,” the report said.

It pointed out that the Philippines’ offering was 6.3 times covered with 9.2 billion renminbi orders, which is the “biggest book and largest oversubscription of any sovereign Panda to date.”

IFR Asia traced the successful float to the “meticulous planning” by Philippine officials who visited China last year to discuss investment opportunities in the country’s “Build, Build, Build” infrastructure modernization projects with Chinese investors, and later on sealed the underwriting deal with Bank of China for the Panda offering during Premier Li Keqiang’s visit to Manila in November.

The Panda bonds were rated “AAA” by China’s Lianhe Credit Rating Co. Ltd.

The Philippines became the first Asean sovereign to issue Panda bonds last March 20.

The Philippines’ participation in the Panda bond market also highlights the increasing relevance of the Renminbi. In 2016, the International Monetary Fund (IMF) included the Renminbi in the Special Drawing Rights’ (SDR) basket of currencies.

According to the BSP’s Investor Relations Office (IRO), the government’s successful issue now opens the door for the private sector to access the onshore Chinese bond market for financing.

Bank of China served as lead underwriter of the bond issuance, and Standard Chartered Bank as joint lead underwriter. /