September 20, 2017 / 4:10 PM / 3 months ago

Portugal hires banks for debut Panda bond

LONDON, Sept 20 (IFR) - Portugal has appointed banks for the issue of a benchmark-sized Panda bond, Mário Centeno, the country’s Minister of Finance, told IFR. The sovereign is looking at a maturity of up to five years.

The bond will be issued through a public offering in the interbank bond market, with the maximum amount on the first drawdown likely being Rmb3bn (€380m).

Bank of China, Caixa Geral de Depósitos, and HSBC are the banks working on the deal, which is planned for conclusion by the end of the year. PBOC has authorised the transaction.

If the Panda bond goes through, Portugal will become the first eurozone country to borrow in the US$9.5trn Chinese bond market, potentially opening the way for other European governments.

“We’ve been trying to extend the range of investors in our debt and [so far] we’ve been doing that with bonds placed in the retail market. China is interesting as it’s a large market,” said Centeno.

Just a handful of foreign entities - including sovereigns Poland and South Korea - have sold Panda bonds in recent years, although the offshore, yuan-denominated Dim Sum market is well established.

Portugal should be able to reach a broader base of investors following its recent upgrade to investment grade by S&P on Friday.

The decision surprised markets, which had expected a move in outlook to positive, according to several bankers. The rating agency factored in improvements in its still-troubled banking sector and progress in the reduction of its budget deficit.

“The recent rally [of Portuguese bonds] showed that are looking to buy on back of [the rating upgrade]. I‘m sure they’ll find support if they issued a bond. I’ve been positive about Portugal for a little while and think there’s still some room to go,” said a banker.

Portugal is rated Ba1/BBB-/BB+/BBB. (Reporting by Melissa Song Loong; editing by Sudip Roy)

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