South Korea to issue first sovereign Panda bonds next Tuesday

By Park Sae-jin Posted : December 10, 2015, 14:38 Updated : December 10, 2015, 14:38


The South Korean government is issuing 3 billion yuan worth of 3-year bonds next Tuesday in China's domestic interbank bond market, becoming the first foreign country to issue so-called Panda bonds, market sources said.

The move will mark a shift for the South Korean government which have so far only issued U.S. dollar and euro foreign exchange bonds. This also represents the latest step in Beijing’s efforts to internationalize ist yuan currency, also known as the renminbi, and deepen its onshore debt markets which are the world’s third-largest after the US and Japan.

Until recently, international borrowers and investors have been mostly limited to offshore renminbi-denominated debt, dubbed “dim sum” bonds. But panda market is increasingly being seen as an alternative to dim sum bonds, allowing borrowers to tap a far bigger pool of capital than renminbi held offshore.

The South Korean offerings, approved by the People's Bank of China on Tuesday, will expand South Korea’s holding of the Chinese currency.

The International Monetary Fund (IMF) has decided to add yuan to its basket of reserve currencies beginning in October 2016, a recognition of China as a global economic power and a key milestone in the country’s path to an integration into global finances.

South Korea has made big strides to deepen its economic co-operation with China, the country’s biggest trading partner. Last year it launched direct trading between the yuan and the South Korean won, and this year signed a free trade agreement with Beijing

South Korea plans to use the proceeds for asset operations in the onshore Chinese capital market as well as repatriating some of the proceeds to provide liquidity, when necessary, to the renminbi market in South Korea, according to a bond prospectus published by the Shanghai Clearing House.

HSBC became the first foreign bank to sell panda bonds in China's domestic market in September.

By Alex Lee
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