Home Europe Portugal Issues First Euro-Zone Panda Bond

Portugal Issues First Euro-Zone Panda Bond

Stockholm (Ekonamik) – The Portuguese government issued a three-year RMB 2 billion in so-called Panda bond, the first from a Eurozone sovereign. The bond pays a 4.09% annual coupon and was priced at par, according to the IGCP, the Portuguese debt management agency.

“Strong demand from investors was reflected in the sizable orders placed in the auction by the selling group,” according to a press release by IGCP. “The order books were 3.165 times oversubscribed enabling to revise the marginal rate tighter three times from 4.35% to 4.09% and allowed the issuer to price close to the lower range of the initial price guidance and 74bps over the equivalent China Development Bank (“CDB”) curve.”

The sovereign received a local rating of AAA by China Lianhe Credit Rating Co. The bond was offered through centralized book building. The securities can trade in the China Interbank Bond Market (CIBM). The bonds are Bond Connect eligible and the contracts are subject to the law of the People Republic of China.

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The deal was preceded by “a comprehensive non-deal roadshow in Beijing, Shanghai and Singapore, during the documentation stage”, where the Portuguese government had the opportunity to present its story to investors.

Prior to Portugal, Poland had been the first sovereign to enter the domestic Chinese market.

The State of Portuguese Government Debt

At the end of April, net debt issuance by the Portuguese government amounted to € 6.7 billion, pushing total debt to € 252.2 billion, according to the IGCP. Of this total stock of debt outstanding, the ECB holds € 39 billion, equivalent to 15.5% of all debt outstanding or 27% of tradable long term debt. Average debt maturity was 7.7 years, and the average cost of funding was 1.6% at the end of April.

As the figure below shows Portugal enjoys exceptionally good funding terms. The yield curve has been flattening since the beginning of the year, with interest rates below 7 years all turning negative in the last six months and continuing to fall following the issuance of the Panda bonds on June 3rd.

Source: BP Stat

Portugal and China

Following the financial crisis, China which was sitting on a pile of cash went on a shopping spree around Europe, which strengthened economic links between the Iberian nation and the Asian giant.

According to reports on Portuguese media, Fosun became the largest shareholder of REN, with 5% of the stock of the national company in charge of the electricity grid, as well as insurer Fidelidade and health care provider Luz Saude. In 2012, China Three Gorges also acquired a 21,35% in EDP, Portugal’s national energy company. Bison Capital also bought the investment arm of Banif, Banif Banco de Investimento. KNJ from Macau also has a stake in Global Media, a Portuguese company that owns two of the country’s main newspapers and TSF one of the main national radio stations, among others.

On the backdrop of these acquisitions, it is easy to see the appeal of expanding Portuguese debt markets towards China.


Picture from Pixabay

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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