China buys Portuguese sovereign debt

By CHRIS GRAEME [email protected]

China has continued its shopping spree around Europe by buying an estimated €1.1 billion in Portuguese sovereign debt.

The purchase of the long-term 10-year bonds will prove a welcome tonic for the pressured Portuguese government on the eve of the year’s first auction of treasury bonds.

In recent months, various Chinese government officials have made it clear that China, which enjoys considerable liquidity, was prepared to help Portugal, Spain and Greece, all Euro zone countries which have been facing mounting pressure from the financial markets.

The help given to Portugal is similar to the lifeline thrown to Spain last week but confidentiality requirements are strict and little is known under what conditions the deals were struck.

The Chinese government has prohibited the release of any official details about the transaction under the threat of the deals not going ahead. 

This includes details about the interest rates that the Chinese are receiving for the 10-year bonds at a time when investors are asking 7.25% in interest on Portuguese sovereign debt.

On Thursday last week the Ministry of Finances confirmed that the Institute of Treasury Management and Public Credit would hold a “private auction” of Portuguese debt on Wednesday, after the Algarve Resident went to press, but refused to make any comment about specific details.

And it is within this context that Chinese help is likely to relieve pressure from the international markets on Portuguese debt given that Portugal needs to drum up €46 billion in borrowing this year to keep the Government afloat.

From this amount, €11.5 billion is needed to finance the day-to-day operations of the Government, while the rest is needed to pay accumulated interest rates on treasury bonds already issued in the past.

Portugal would have been closely watched on Wednesday when the government attempted to sell up to €1.25 billion worth of five and 10-year treasury bonds.

In December last year Portugal’s finance minister, Fernando Teixeira dos Santos made a whistle-stop visit to Beijing to try and persuade Chinese authorities to buy Portuguese government bonds. He had also visited Brazil with the same aim.

China is already a major buyer of European government bonds and has pledged to continue to buy them.