What a $50m panda bond could buy Bangladesh

At a meeting on alternative financing chaired by Finance Minister Amir Khosru Mahmud Chowdhury on June 20, the Bangladesh Bank governor proposed that the country’s first international sovereign bond should be a $50 million panda bond in China’s onshore market. An inter-ministerial committee will weigh it against a conventional dollar Eurobond.

The obvious objection is arithmetic. Against a Tk 9.38 lakh crore budget and external repayments heading towards $6 billion a year, $50 million would fund the government for only a matter of hours. But raising money is the wrong test for a debut. I argued last month that Bangladesh’s problem is not solvency but the absence of any market channel once the concessional cushion thins. The question is not how much to borrow, but what a first transaction is designed to achieve.

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A well-designed debut produces things that money cannot buy later. The first is a price: a market rate for Bangladeshi sovereign risk, set by investors rather than inferred from a rating letter. The second is an apparatus: the disclosure and reporting machinery that a bond requires. None of this exists today. A debut is also a rehearsal: the ministry’s first order book and first pricing call, at a size where a mistake becomes a lesson rather than a crisis.

Pakistan has just shown what this looks like. In May, it became the first South Asian sovereign to issue a panda bond: about $258 million, priced with a 2.5 percent coupon and more than five times oversubscribed, more than five percentage points below the average on its outstanding dollar bonds. The difference was structure, not creditworthiness. Partial guarantees from the Asian Development Bank and the Asian Infrastructure Investment Bank lifted the instrument to a domestic AAA rating. Having worked on the privatisation of Pakistan’s state oil and gas companies a decade ago, I recognise the pattern. Its access to international capital has always depended on structure. Indonesia is pricing its own debut this week at around $1 billion, but it is investment grade and needs no guarantee. Bangladesh, rated B+ with a negative outlook, appears to investors much like Pakistan, and the same template applies: a small, credit-enhanced issue with proceeds ring-fenced for a named project.

The standard warning against sovereign bonds invokes Sri Lanka and Argentina. What undermined those borrowers was scale and purpose: billions raised at market rates to plug fiscal deficits, unhedged. A $50 million guaranteed instrument is a controlled experiment that makes failure less likely because the alternative is a debut done in a hurry, at scale, when repayments force the government’s hand.

The caveats should be on the record. A yuan bond will be seen by some as a tilt towards Beijing. A small instrument guaranteed by multilateral banks is a market transaction, not a political alignment, and the dollar Eurobond should remain under consideration in parallel. Yuan debt also creates a currency mismatch because Bangladesh earns dollars, not renminbi. A swap line or hedging against Chinese imports should therefore be built in from the start. And this would genuinely be a first. The Bangla Bond listed in London in 2019 was issued by IFC on its own balance sheet, and the sovereign’s signature has never been tested in international markets.

The committee’s terms of reference should define success in terms of capability rather than proceeds: engage the rating agencies before any mandate is awarded, and negotiate a partial guarantee with the ADB or AIIB based on the Pakistani model. A published debt strategy should identify a benchmark transaction and set a date. The governor’s $50 million figure is right, for better reasons than caution. The first bond is not the financing. It is the door.

The writer is an investment banker and managing director at RetailBook