KARACHI: A consortium consisting of two Pakistani and two Chinese banks has won the contract to serve as the financial adviser and lead manager for the country’s Panda bond flotation to be held in the near future.

The consortium consists of Habib Bank Ltd and Citibank from Pakistan side and China International Capital Corporation (CICC) and China Development Bank (CDB).

The size of the flotation has not yet been announced but knowledgeable sources said it will likely be in the range of $1.3 billion, with an initial tranche of $300 million. Proposals were submitted on March 20 and nine parties participated out of which four were shortlisted. The four shortlisted parties were: Bank of China, one of China’s largest state-owned commercial banks, followed by a consortium of Industrial and Commercial Bank (ICBC) of China, Guotai Junan Securities, and Haitong Securities.

In addition to these, CITIC Securities — China’s largest full-service investment bank — also submitted a bid. Finally, the consortium consisting of HBL, Citi, CICC, and CDB emerged as winners of the exercise.

The Bank of China bid was 0.30 per cent of the total amount raised while the ICBC bid was at 0.15pc. The CITICS bid was at 0.30pc while the consortium that won the contract bid 0.70pc of the total amount raised through the auction to serve as the financial adviser and lead manager (0.50pc for underwriting and 0.20pc for advisory), according to knowledgeable sources who were present when the winner was announced.

The next stage now will see road shows and book building process. Since Panda bonds are only traded on Chinese exchanges, the road shows will be held in regions where large pools of investors with RMB holdings are found ie Beijing, Shanghai, Hong Kong, Singapore, Taiwan, and a few other cities.

There are two kinds of Panda bonds: exchange-traded and those that are held by banks on their balance sheets. Given Pakistan’s credit rating, it is more likely to go for exchange-traded bonds.

The skill with which the book building process and the auctions are conducted will determine the depth of the participation and the yields that Pakistan’s government will have to pay on the bonds.

Published in Dawn, April 10th, 2019