Tapping the panda bond opportunity

IT could be time for large Malaysian corporations to consider tapping the panda bond market. While panda bonds are not a new phenomenon – the People’s Bank of China (PBoC) introduced the concept some 20 years ago – they now appear to be in a sweet spot.

Panda bonds are essentially yuan-denominated bonds issued by non-Chinese entities in China’s domestic onshore bond market.

They differ from dim sum bonds, which are issued offshore in Hong Kong to international investors. The major interest now seems to be with panda bonds.

The first advantage of panda bonds is the lower coupon rates the market there is offering.

Corporate bond coupon rates are typically benchmarked against a country’s Treasury paper rates. The rates for the corporate bonds will be slightly higher, depending on the issuer’s credit rating.

“China’s three-year and five-year benchmark yields are at 1.33% and 1.47%, versus Malaysia’s 3.3% and 3.48%, and the US government papers’ 4.34% and 4.39%, respectively,” points out Hu Jiachen of China Galaxy Securities Co Ltd, which wholly owns CGS International Securities Malaysia Sdn Bhd (CGSI).

The Chinese government sees the growth of panda bonds as part of its aim to internationalise the yuan.

Hu says that in 2022, the PBoC formally allowed the offshore transfer of proceeds raised through panda bonds. This means that the yuan raised in China via panda bonds can be swapped into other currencies, a service carried out by international banks.

Furthermore, Hu says the PBoC “has also introduced a series of dedicated regulatory rules for panda bonds, continuously refining and streamlining the regulatory framework and issuance mechanism to gradually align them with international bond standards”.

Gaining interest

So, are Malaysian issuers getting interested?

Alan Inn, country head of CGSI, tells StarBiz 7 that panda bonds have been garnering interest from Malaysian financial institutions, non-financial corporates and government-related entities.

“We’re receiving client queries about panda bond market conditions, operational procedures and merits of an issuance,” Inn adds.

However, he points out that the panda bond market currently accepts only large-scale issuers, citing the examples of European automakers Mercedes-Benz, BMW and Volkswagen as successful issuers.

Others include CapitaLand, Shangri-La, Suzano, Bayer, BASF and Trafigura.

As for financial institutions, successful issuers include Morgan Stanley, Deutsche Bank, Barclays, UOB and Malaysia’s very own CIMB Group Holdings Bhd.

Last October, CIMB said it issued its first-ever three-year panda bond, raising three billion yuan with a fixed coupon rate of 2.18%. It said proceeds would be used mainly to expand its Malaysian and cross-border businesses, with a portion retained in China to support business development there.

Malayan Banking Bhd (Maybank) had earlier issued panda bonds in 2017 and 2019, although coupon rates were higher then.

Benjamin Quek of CGSI adds: “The internationalisation of the yuan has been discussed in policy circles for a decade. What is different today is that the panda bond market has become a practical funding option for a wider group of international issuers.

“Panda bond issuance exceeded 160 billion yuan in the first half of 2026, up 69% year-on-year. By end June 2026, cumulative issuances had surpassed 1.3 trillion yen, involving more than 110 issuing entities from 24 countries and regions.

“Malaysia is particularly well placed to explore this market given its long-standing trade and investment relationship with China. Recent Malaysian issuance has also shown that well-rated Malaysian institutions can access the market at meaningful scale.

“It also helps that Malaysian issuers are relatively familiar to Chinese investors. China was Malaysia’s largest trading partner for the 17th consecutive year in 2025, while Malaysia was China’s second-largest Asean trading partner that year. That history gives Chinese investors useful context when assessing a Malaysian issuer.”

Largest deposit pool

So, how deep is the pool of investors in China? China’s onshore institutional investor base includes commercial banks, wealth-management companies, public fund managers, asset managers, and pension or annuity investors. Quek adds that the supply of high-grade domestic paper has not expanded at the same pace. 

“A well-rated foreign issuer can offer diversification without requiring investors to compromise on credit quality,” he says.

Quek notes that when he first started promoting the idea of panda bonds in the Malaysian market, the response was lukewarm. “At the time, the funding differential was already difficult to ignore. But the headline yuan coupon is only the starting point.

“An issuer has to look at the fully swapped, all-in funding cost after factoring in currency, interest rate and hedging costs. Only then can it make a like-for-like comparison with the ringgit or other funding alternatives,” he says.

That said, there is a perception that issuing panda bonds carries an inherent risk dealing with China regulators who could change the rules along the way, in other words, an uncertain regulatory environment.

Hu acknowledges these concerns but says the panda bond regulatory framework has become increasingly mature and stable over the years.

“Policy adjustments follow consistent opening-up objectives and are generally not retroactive.

“Many repeat international issuers have continuously accessed the market, which demonstrates predictable regulation,” he explains.

Structural advantage

What about currency risks, especially for issuers that earn revenue in the ringgit?

Inn says clients can execute cross-currency swaps against the ringgit or other currencies to hedge foreign-exchange and interest-rate risks, while meeting multi-currency requirements.

“Natural hedging is available for clients with yuan-denominated business or receivables,” he says.

For clients who wish to swap their yuan bond proceeds, such transactions are conducted with counter-party banks and represent standard market practice, says Inn.

“Hedging costs vary depending on currencies and timing. Clients may compare the all-in hedged cost against funding costs in the target currency. At present, the hedged cost of panda bonds remains competitive in most cases,” he says.

In the past, Japanese-issued bonds, or samurai bonds, were all the rage following their lower interest rates. How do they compare with panda bonds today?

Inn explains that China now has the world’s second-largest bond market after the United States, far larger than Japan’s.

“Samurai bond issuance has been shrinking, with 2025 volume at roughly one-third of panda bonds. On regulation, as we discussed, Chinese regulators take a more open, flexible and transparent approach to foreign issuers. We see these risks as fully controllable,” he says.

Quek adds: “The global funding environment has changed materially. US dollar funding remains comparatively expensive, while China is one of the few major markets where onshore funding costs remain comparatively low.

“Malaysia’s long-standing trade and investment relationship with China gives Malaysian issuers a strong basis to explore the market. But the final decision must still be based on each issuer’s credit profile, intended use of proceeds and fully hedged all-in funding costs.”