Philippines rewrites Panda playbook

Asian Development Bank Special Report 2018
5 min read

The Republic of the Philippines shook up the Panda bond market in March with an exceptionally tight debut that underscored the growing role of overseas investors in onshore renminbi financings.

The Baa2/BBB/BBB rated sovereign priced the Rmb1.46bn (US$230m) 5.0% three-year notes in China’s interbank market at the low end of 5.0%–5.6% indicative guidance.

In a first for the Panda market, most of the bonds went to overseas buyers, helping the Philippines smash through pricing expectations and leaving other issuers scrambling to understand the achievement. Offshore investors took an auspicious 88% of the notes.

Final pricing represented a spread of only about 35bp over the three-year notes of China Development Bank, rated Aa3/AA– (Moody’s/S&P), and no premium at all over the Rmb10bn three-year issue of Central Huijin, a unit of sovereign wealth fund China Investment Corp, also priced at 5% last week.

Of the five sovereign Panda bond issuers so far, only South Korea (Aa2/AA/AA–), rated five to six notches higher than the Philippines, has priced at a tighter spread over CDB.

Less than two months earlier, the government of the Emirate of Sharjah, rated A3/BBB+ (Moody’s/S&P), offered a 103bp premium over CDB for its Rmb2bn three-year Panda at 5.80%.

The other two sovereign issuers, Poland (A2/BBB+/A–) and Hungary (Baa3/BBB–/BBB–), paid 60bp and 83bp over CDB, respectively.


The stunning pricing was the result of overwhelming demand via the Bond Connect link, which gives international investors direct access to the Chinese market through Hong Kong.

Sovereign wealth funds and Philippine banks contributed significantly to the offshore bid, according to market sources.

“It is likely that Philippines banks supported the sovereign deal, just like Chinese banks back their sovereign deals,” said a DCM banker away from the deal.

Orders came in much stronger than expected after books opened last Tuesday, according to sources familiar with the matter.

“The issuer was confident about demand, following the roadshow the previous week. Still, the momentum of the bookbuilding far exceeded our expectations,” said one of the sources.

The offering was 6.3 times covered with Rmb9.2bn of orders, the biggest book and the largest oversubscription of any of the sovereign Pandas to date.

The final allocation to Chinese onshore investors was just over 10%. Onshore bids made up half of the total order book, but most of them were outpriced by offshore accounts, sources said. Further distribution statistics were not available.

The achievement caused some soul-searching among some participants in previous sovereign Panda bonds, who were scrambling to explain why their deals had paid a higher spread.

The DCM banker away from the deal said he was drafting a report to clients “hopefully in a tactful way”.

Bankers on the deal said the offering demonstrated the importance of offshore support at a time when China’s onshore bond market held little pricing advantage for foreign Panda bond issuers.

“The deal shows that reaching out to offshore orders was a good idea for Panda bonds, which we did not think about before,” said another Beijing-based DCM banker away from the deal.

Despite cheaper funding in the offshore renminbi debt market, potential sovereign issuers would stick with the Panda bond market, bankers said.

“Panda bonds have a much better marketing effect for sovereign issuers, whose primary goal is to build/enhance relations with the Chinese government,” said a banker.

Like other recent Panda issuers, the Philippines also made a play on the Belt and Road theme.

The prospectus said proceeds would be remitted offshore as part of the country’s international reserves. Some of the funds may be converted to pesos to fund budget expenditures and to support Belt and Road projects.


The sovereign had started preparing the ground for the offering very early. In late September, Philippine officials visited China to deliver a first pitch and to discuss investment opportunities in domestic infrastructure projects.

In November, the country signed an agreement with Bank of China during Chinese Premier Li Keqiang’s visit to Manila. It received approval from the People’s Bank of China in February.

Then, a week before the deal, a Philippine delegation, led by National Treasurer Rosalia de Leon and Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo, met potential investors in Singapore, Hong Kong and China.

Bank of China was lead underwriter on the offering with Standard Chartered Bank (China) as joint lead underwriter.

This article first appeared in IFR Asia issue 1033 on March 24, 2018

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