Caterpillar, the US-based manufacturer of earth-moving equipment, is marketing a two-year 1 billion renminbi bond to institutional investors in Hong Kong, becoming the first foreign industrial multinational to issue debt in the Chinese currency.
The issue, which is only the second by a multinational to date, dwarfs a 200 million renminbi issue launched by McDonald’s in August. The deal will give momentum to the nascent offshore market in renminbi-denominated debt which financiers hope will become an important fundraising route for companies with operations in China.
The interest rate on Caterpillar’s corporate bond will be determined according to interest from Wednesday’s marketing effort. McDonald’s three-year note was quickly oversubscribed and secured a 3 percent coupon.
Caterpillar is understood to have secured approval from Chinese regulators – including the People’s Bank of China and the State Administration of Foreign Exchange – to transfer the proceeds of the bond sale to the Chinese mainland, people familiar with the matter told the Financial Times.
The company will use the proceeds to support customer purchases through Caterpillar (China) Financing Leasing Company, the Chinese subsidiary of Cat Financial, the manufacturer’s financing arm.
Caterpillar, which has operated in China for three decades, has a significant manufacturing and dealer presence in the country, where it employs about 7,400 workers.
China is expected to account for about 9 percent of the company’s $41 billion-$42 billion annual revenues this year. Caterpillar has a market share in the Chinese heavy machinery sector of about 7 percent.
Rich Lavin, the manufacturer’s group president and head of its emerging markets team, will be based in Hong Kong from January, the first time such a senior executive from the company has been permanently located in China. The relocation is intended to show Caterpillar’s commitment to the country.
The move comes after HSBC last year signaled its determination to expand in China and across Asia by moving Michael Geoghegan, its chief executive, from London to be based full-time in Hong Kong.
Caterpillar’s bond, which is being arranged by Goldman Sachs , comes two days after China’s government announced it would sell 8 billion renminbi ($1.2 billion) of bonds in its second such sale in Hong Kong.
The Chinese finance ministry will sell 5 billion renminbi of the debt to institutional investors this month, with maturities of three, five and 10 years, while 3 billion renminbi of two-year bonds will be allocated to individuals.
By issuing debt at a range of maturities, the government is aiming to deepen the offshore market for renminbi-denominated debt and establish pricing reference points for corporate issuers.
McDonald’s became the first multinational company to sell renminbi bonds in Hong Kong in August, after China lifted a series of restrictions on the use of the currency outside the mainland.
While so-called “dim sum” bonds – renminbi-denominated bonds issued in Hong Kong – have been around since 2007, there have been about 20 deals so far, as issuance was initially restricted to Chinese financial institutions.
Since February, it has become possible for any company in the world to tap the “dim sum” market. But issuers still need to gain approval from Beijing to move the proceeds from Hong Kong to the mainland.
Beijing has liberalized the use of the renminbi in Hong Kong as part of a much bigger plan to boost the international role of the currency and reduce China’s reliance on the US dollar.