Poland issues 'Panda bond' at negative yield

By bne IntelliNews August 26, 2016

Poland has become the first European sovereign to issue a “Panda bond” – a renminbi bond from a non-Chinese issuer, sold in China.

The Polish ministry of finance announced on August 25 that the issue of RMB3bn (€399mn) in three-year bonds with a coupon of 3.4% had been priced at a negative yield of -0.173% after being swapped into euros. The issue was subscribed twice over.

The move demonstrates the eagerness of Central European countries to build economic ties with China. Like most of its neighbours, Poland is seeking Chinese investment and wants to boost trade to reduce its massive trade deficit with the world's second biggest economy. 

Poland first said in February it was considering issuing debt in yuan. Chinese President Xi Jinping made a visit to Warsaw in June during which a strategic partnership was signed on top of several business deals.

The success of the issue (and the low yield) could potentially open up new sources of financing at a time when Poland’s Law and Justice government wants to boost social spending. Poland is planning to raise its budget deficit next year to just within the European Union's limit of 3% of gross domestic product.

“Emitting bonds on the Chinese market was aimed above all at diversifying our investor base and acquiring financing to cover this year’s loans,” the ministry said.

The issue, for which Bank of China and HSBC were the bookrunners, was taken up mostly by Chinese institutional investors, it said.

Hungary became the first CEE sovereign to issue yuan-denominated debt in April, when it sold CNY1bn (€137mn) of a three-year "Dim Sum bond", a renminbi bond issued outside China. But that bond had a coupon of 6.25% and was priced around 2.5%, well above the 1.5% that forint bonds were trading at the time.

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