Portugal plans to issue public debt in China

Portugal plans to issue bonds denominated in Chinese currency in the amount of 2 billion yuan or about 260 million euros, the Portuguese Secretary of State for Finance announced in statements to Portuguese online newspaper Eco.

Ricardo Mourinho Félix also said these “panda bonds,” due to be sold on 29 and 30 May, will have a maturity of three years, and the interest rate is likely to exceed that currently paid by Portugal for financing.

Portugal is paying historically low amounts to issue public debt (the 10-year benchmark rate is currently at 1.033%), and the Secretary of State said that the higher rate “will be the cost of entering a new market.”

“The purpose of the [Chinese currency debt] issue is to be involved in a large and very liquid market,” the secretary of state said, which will require the Treasury and Public Debt Management Agency to make hedge the exchange rate risk.

The amount put up for sale is limited because it is the first time Portugal is issuing debt in the Chinese market but the authorization that the country was given from the Chinese authorities allows for further issues in the future.

This operation also involves the Bank of China and HSBC, which will act as leaders, and Portugal’s CaixaBI will be the financial adviser.