The term panda bond refers to an indenture issued in China, in Chinese renminbi, by a foreign bank or corporation. Panda bonds are issued when a corporation wishes to raise capital from investors located in China.
Foreign corporations that wish to raise funds in the People’s Republic of China have the option of issuing what are known as panda bonds. These bonds are sold by non-domestic entities, including corporations, financial institutions and governments, and are issued in Chinese renminbi. This is typically done when the interest rates in China are low relative to the foreign corporation’s domestic rates, which lowers their interest expense.
Since the bond is issued in the People’s Republic of China’s domestic currency, investors located in China are also insulated from currency exchange rate risk. Foreign companies will usually issue these securities if they have plans to establish operations in China. These bonds are also attractive to investors wishing to geographically diversify their portfolios.
The giant panda is a bear native to south central China. While the dragon has historically served as China’s national symbol, the giant panda now appears at least as frequently as the dragon.