Arab Energy Fund Eyes China: $1.4B Panda Bond Plan

The Arab Energy Fund (TAEF) has received regulatory approval from China to raise as much as 10 billion yuan, approximately $1.4 billion, through yuan-denominated bonds. This approval paves the way for what could be one of the most substantial panda bond programs originating from the Middle East.

TAEF, a state-backed investor supported by Middle East sovereigns like Saudi Arabia and the UAE, plans to issue these bonds over a two-year period. This move signifies the Gulf's strategy to leverage favorable market conditions in China for more affordable financing.

The fund's chief financial officer indicated that the first sale of these panda bonds might occur later this year. Such an issuance would be TAEF's debut in the panda bond market, which involves yuan-denominated debt issued by non-Chinese entities within China's onshore market.

This initiative aligns with the broader ambition of Gulf nations to strengthen economic ties with China, especially as trade volumes between the regions are surging. China has become the Gulf's largest trading partner, with volumes projected to increase significantly in the coming years.

The average coupon rate for panda bonds has recently fallen to a record low, making them a more cost-effective financing option compared to dollar bonds. TAEF has not specified the use of proceeds but has previously focused on private equity and project finance, with goals to boost investments substantially.