IGCP: Portugal successfully entered the Chinese Bond Market

The Portuguese Treasury and Debt Management Agency (IGCP) was successful to be the first Eurozone’s country selling debt on China’s Bond Market, the third biggest in the world. Portugal is the third European country to do it, following the example of Poland (August 2016) and Hungary (July 2017).

Today, 30th May, Portugal has issued 2Bn renminbi (the equivalent to 260M€) in Panda Bonds with a yield at 4.09%. Operation’s success counted on strong demand; three times higher than the offer. Doing a simple currency conversion to euros, Panda Bonds’ yield would be the equivalent to 0.65%.

The markets were expecting an interest rate between 3.9% and 4.5% for bonds with a maturity date of 2022, being admitted to trading on the Beijing Stock Exchange afterwards. This operation will be more expensive than it would be any other bond issuance process in euros, as the Ministry of Finance also reckoned.

Apart from paying the interest rate, the Portuguese Treasury will also have to cover for the exchange risk against currency volatility for the whole amount that was issued. Notwithstanding the costs being significantly high, opening to new markets and diversifying investment sources were the core arguments to the decision of issuing Panda Bonds.

According to Moreira Rato, former President of the IGCP, “it might worth paying higher interest rates given the dimension” of this “growing market”, adding that it came without surprise that Portugal would be successful in this operation.