Concerns raised over ‘Panda Bonds’ issued by B.C. government

Click to play video: 'Chinese bonds and BC’s real estate crisis' Chinese bonds and BC’s real estate crisis
WATCH: Paul Johnson explains how something called “Panda Bonds”, used to raise money in mainland China, could be hurting the local housing market – Jun 30, 2016

This January, while in China, B.C. Finance Minister announced the issuing of Panda bonds, “officially accessing one of the world’s largest capital markets and strengthening relations with a key partner in the Asia-Pacific region.”

“British Columbia’s triple-A credit rating gives our Province access to markets and investors we couldn’t otherwise reach, and China’s onshore market provides access to a diverse, relatively untapped group of investors,” said Mike de Jong.

B.C. has been raising money by floating bonds in Asia for years, but the panda bond is the first one sold exclusively in mainland China and denominated in Chinese currency.

Here’s how it works: the government sold the equivalent of $665 million in bonds to investors in China. They took that money and put it into a bank in Singapore that should pay the province more than what it owes on the bonds. That money then gets re-invested back into B.C.’s trade missions in China.

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Add it up, and the government expects they’ll make about $13 million over the three-year term of the bond. If it works as planned, it’s a low-risk dividend for taxpayers – but the NDP have concerns.

“Is there a connection between these bonds and the ability of people to evade the currency controls in China in order to buy Vancouver real estate?” asked Vancouver-Point Grey MLA David Eby, who wonders why such an arrangement was needed.

“There are lots of reasons why people would want to buy bonds with British Columbia, including the purchase is incredibly secure.”

De Jong was unavailable to comment today, but a spokesman from the Ministry of Finance told Global News they believe the interest they’re paying on those bonds is fair, and that there is no way these bonds can be used as leverage to buy real estate here. They believe that the panda bonds are less about making money, and more about building relationships in China.

However, the Ministry of Finance wouldn’t disclose what interest rate the province of B.C. is getting from its deposit in Singapore.

“It’s the public’s money. And that includes issuing a paper explaining why it’s a good investment…including what is the interest rate we’re receiving from this bank in Singapore. It seems like an unusual arrangement,” said Eby.

“This is an innovative, groundbreaking thing, we’re told. It’s new, it’s different. In that case, it calls for more transparency.”


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