Caterpillar Inc. (CAT) has issued a two-year RMB 2.3 billion ($355 million) bond with a coupon rate of 1.35% to institutional investors in Hong Kong, the biggest issue yet by a foreign multinational company in the offshore yuan market. Caterpillar plans to use the proceeds to fund its Chinese operations.
Caterpillar is the second company to return to the yuan market. In November last year the company entered the market by issuing a two-year RMB 1 billion ($150 million) bond with a coupon rate of 2% to institutional investors in Hong Kong.
Caterpillar follows Hopewell Highway Infrastructure Ltd, the only other company to issue twice in the offshore renminbi market, which raised funds in May this year.
It is reported that McDonald's Corp. (MCD) is also planning to follow suit and re-enter the burgeoning renminbi market. McDonald's had raised RMB 200 million ($29 million), in August 2010, through the sale of 3% notes due in September 2013. This was the first yuan bond sale of a non-financial multinational company in Hong Kong.
The issuance of the renminbi-denominated bonds (also known as “dim sum” bonds) in Hong Kong was earlier restricted to Chinese financial institutions.
However, in February last year, China removed such prohibitions, allowing foreign companies to issue dim sum bonds in Hong Kong to promote the use of Chinese currency for global commerce and reduce China’s reliance on the U.S. dollar. This enables multi-national companies to tap the growing dim sum markets, but subject to approval from Beijing.
Strong international demand for yuan-denominated products is being fuelled by expectations of the currency appreciating, and foreign investors investing in yuan debt sold in Hong Kong can also avoid the strict capital controls implemented in mainland China.
Caterpillar has to date remained focused on building as well as enhancing its facilities in China as part of its strategy to expand in emerging markets to meet its long-term goals. The demand for Caterpillar’s heavy equipment is on the rise given improving economic conditions, particularly in the developing economies.
Caterpillar is ramping up production to meet the surge in demand. Needless to say, a strong brand name, pricing power and global dealer network give Caterpillar an advantage in exploiting the growing need for infrastructure development worldwide.
We expect Caterpillar to maintain its revenue growth trajectory aided by growth in emerging markets as well as construction and mining activity in the developing countries. Increased domestic and international infrastructure spending, improved economic conditions and benefits from the yet-to-be closed acquisitions will support revenues over the next several years. The shares of Caterpillar presently retain a Zacks #3 Rank (short-term Hold Rating).
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base.
Caterpillar operates three divisions – Machines, Engines and Financial Products. Caterpillar competes with the likes of CNH Global NV (CNH), Komatsu Ltd. (KMTUY) and Volvo AB (VOLVY).
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