Panda Bonds

Overview and current development in the interbank market

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A Panda Bond is a Renminbi (RMB)-denominated bond issued in Mainland China.

Overview

According to international practice, a foreign financial institution always selects the country’s mascot as the name when issuing local currency-denominated bonds. As such, China’s Ministry of Finance named the bonds Panda Bonds. The issuer of a Panda Bond, always a foreign entity, can be either a financial or non-financial institution.

A Panda Bond is similar to Japan’s Samurai Bond or the US’s Yankee Bond. The first two Panda Bonds were issued in October 2005, by the International Finance Corporation (IFC) and the Asian Development Bank (ADB).

New regulations are still being codified – however, several practices have been established to meet regulator “expectations”:

  • To prepare financial reports in accordance with Chinese accounting standards for enterprises - unless the accounting standards currently used by such issuers have been recognized as equivalent to Chinese accounting standards by the Ministry of Finance (MOF)
  • To have the financial reports audited by an appropriately qualified accounting firm in China (If the audit firm is not registered in China, the issuer may need approval from the regulators allowing the overseas audit firm to be involved in the transaction.)

 

Issuance of Panda Bonds

 Type of issuer

Approved/
registered program
(RMB billion)

Amount issued

Number of offering

(RMB billion)

International development agencies

ADB

2

2

2

IFC

2

2

2

Sovereign and quasi-sovereign

Republic of Korea

3

3

1

Province of British Columbia, Canada

6

3

1

Financial
institutions

HSBC HK

1

1

1

Bank of China HK

10

1

1

Standard Chartered HK

2

1

1

Non-financial companies

Daimler

25

7

5

China Merchants Group (HK)

3

0.5

1

TOTAL

54

20.5

15

Source: National Association of Financial Market Institutional Investors (“NAFMII)

  • Reasons for issuing Panda Bonds

    Offer a way for financial and non-financial enterprises to diversify their investor base and gain a foothold in China.

    Provide a vehicle for enterprises wanting to fund an onshore subsidiary or to do more business in China.

    Gain publicity and marketing advantages, a key attraction for first-movers.

  • Advantages of issuing Panda Bonds in the interbank market

    The interbank bond market accounts for 80% of the overall China’s bond market, with diverse participants, high liquidity, a wide
         range of products, and flexible innovation mechanisms.

    The numerous, multi-tier professional participants in the interbank bond market include commercial banks, securities companies,
          accounting firms, law firms, and rating agencies.

    The interbank market integrates the foreign exchange, money, and bond market; and thus it is more able to timely follow policies, and
         maintain close communication with regulators.

  • Regulatory concerns

    NAFMII (PBOC in certain circumstances) will review the issuer’s investment circular.

    These are the currently acceptable financial reporting frameworks:
         Accounting standards: Chinese Accounting Standards (CASs), Hong Kong Financial Reporting Standards (HKFRSs), or
              International Financial Reporting Standards (IFRSs)
         Auditing standards under Chinese Standards on Auditing (CSA), and Hong Kong Standards on Auditing (HKSA)

    The circular must be written in Chinese – translation may be an issue.

    Concerns may arise if overseas entities adopt an accounting framework which is not IFRSs and/or its audit firm is not registered in
         Mainland China or Hong Kong.

  • Key challenges for potential issuers

    Issuers must provide past three years of financial statements under the CASs – it may involve a sizeable amount of work to convert
          non-CAS accounts into CAS to make the specific filing. However, the MOF is authorized to grant an exemption to use CASs where the
          accounting standards adopted are accepted by MOF as being equivalent to CASs.

    Circular and disclosure documents are to be drafted in Chinese; therefore, the translation needs careful planning.

    A credit rating must be obtained from at least one domestic rating ag ency. Panda Bonds rated by a global rating agency may have a
         different rating to those from a domestic rating agency.

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