Exclusive-Brazil plans largest panda bond debut to 'test' waters

By Joe Cash

BEIJING, June 25 (Reuters) - Brazil plans ‌to raise up to ​5 billion ​yuan ($735 million) with its first-ever issuance of panda bonds, Finance Minister Dario Durigan told Reuters on Thursday, marking the largest debut of yuan-denominated debt by a foreign nation in China.

The Latin American country will ‌become the fifth sovereign issuer in 12 months to tap into China's domestic debt market, with ⁠the move seen as a "test" to help private Brazilian firms deepen their presence in the world's second-largest economy, Durigan said.

The size of the issuance has ‌not been previously reported.

Though still nascent, panda ‌bonds are a key part of Beijing's effort to internationalise the yuan, which still faces tight capital and regulatory controls.

Diplomatically, they also signal emerging markets' openness to alternatives to the dollar-dominated global financial system.

"We need to test and to ​start doing the trajectory of sovereign debt of Brazil in China," Durigan said in an interview following a meeting with China's central bank governor Pan Gongsheng in Beijing to finalise the plan. He said he hoped the bonds would ⁠be issued within the next two to three months.

"We raised €5 billion in Europe. We haven't defined the amount here in China for the first issuance, but it ​will be up to 5 billion (yuan)," he added.

Slovenia made the biggest previous debut earlier this year, raising 4 billion yuan on a three-year bond.

Brazilian firms had asked the government to begin ​issuing yuan-denominated debt to help them raise funds through private panda ‌bond deals and to ease foreign exchange volatility in Brazil, Durigan said.

He added that he had discussed the plan with miner Vale and electrical equipment maker WEG.

"The profitability of projects (in Brazil) is ⁠very good, but the volatility of the rates of the (Brazilian real) may affect the final result, so we are providing a hedge currency resource for these investments," he added.

CURRENCY AMBITIONS

While China's currency is becoming a bigger part of the global financial system, Beijing has yet to ⁠move beyond emerging market deals and take the fight to the dollar.

The world's second-largest economy is built on exports for U.S. dollar proceeds, and ​tight controls mean the yuan remains illiquid, an added risk that needs to be priced in.

Still, Pakistan, Kazakhstan, Slovenia, and Hungary have all turned to China's onshore debt market over the past year, as relatively low yuan borrowing costs have made it an attractive alternative to ‌dollar- and euro-denominated funding.

Durigan said there was "no development" when asked for an update on suggestions the BRICS bloc could create a common currency to challenge the dollar.

Brazil was a founding member ‌of BRIC alongside China, Russia and India, with an 'S' later added when South Africa joined in 2010. The group has since expanded ⁠to include Egypt, Ethiopia, Iran, the United Arab Emirates ‌and Indonesia.

"The vision that we (Brazil) have ​on geopolitics is multilateralism, so it's fair for other countries to grow their currencies, to grow their influence around the globe," Durigan said.

($1 = 6.8028 Chinese yuan)

(Reporting by Joe Cash; Editing by Thomas Derpinghaus ‌and Sam Holmes)

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