The Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB) have agreed to extend $285 million in guarantees to support Pakistan’s plan to raise $250 million through its first-ever Panda bond issuance.
The backing comes as Pakistan’s weak credit rating continues to block direct entry into international debt markets. The guarantees will be finalized once the government completes its internal approval process, which has already been placed before the Concept Clearance Committee and the Central Development Working Party (CDWP), according to a report in Express Tribune.
ADB will provide up to $160 million in guarantees, while AIIB will cover $125 million. Together, these will secure 95% of the bond’s principal and accrued interest obligations. Both banks will charge fees ranging between 0.8% and 1.25% for the guarantees, which will be issued directly to foreign private investors.
The guarantees are conditional on Pakistan using the loan exclusively for green and environment-friendly projects. Planned allocations include:
- $76.5 million for a Telemetry System to monitor real-time water discharge at 27 key sites on the Indus Basin irriation network;
- $71 million for the ADB-backed Power Distribution Strengthening Project;
- $27 million for equipment procurement for a cancer hospital in Islamabad;
- $76 million for the Jinnah Medical Complex and Research Centre.
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The finance ministry noted that Pakistan’s sub-investment-grade sovereign credit rating requires credit enhancement to achieve a domestic AAA rating for Panda bonds in China. Unlike global markets, the Panda bond market is strictly investment-grade.
Despite Pakistan’s ongoing $7 billion IMF bailout programme, reliance on ADB and AIIB guarantees highlights the limited confidence the programme has restored among international investors. The central bank has also had to purchase over $8 billion locally to manage external financing needs.
The government plans to issue RMB 250 million worth of bonds under its Panda bond programme on China’s national interbank market, subject to approval from the National Association of Financial Market Institutional Investors (NAFMII). The overall ceiling for the programme is set at RMB 1 billion, to be raised in multiple tranches.
ADB and AIIB have aligned their guarantee structures with Chinese regulatory requirements. ADB will charge an annual guarantee fee of 50 basis points, a one-time commitment fee of 15 basis points, and an upfront fee of 25 basis points. AIIB’s fee structure includes a 50-basis-point annual guarantee fee, up to 50 basis points in processing fees, and a 25-basis-point upfront charge.
