Caterpillar to sell yuan bond
Data delayed at least 15 min
Reuters · Tuesday, Nov. 23, 2010
U.S. heavy machinery maker Caterpillar Inc. has set a coupon rate of 2% for its two-year, 1 billion yuan ($150 million) bond to be offered in Hong Kong, sources said on Wednesday. Goldman Sachs Group Inc. is the lead underwriter.
Caterpillar would be the second foreign company to sell yuan bonds in the former British colony after McDonald’s Corp. issued 200 million yuan of three-year notes in September, according to data compiled by Bloomberg. Wal-Mart Stores Inc. said in March it was considering bonds in yuan and United Co. Rusal, the world’s largest aluminum producer, said in September that officials met bankers to learn about the market.
“There’s little doubt these deals will do well so long as the borrower’s a reasonable name,” Vijay Chander, Hong Kong- based head of credit strategy at Standard Chartered Plc, said in a phone interview. “Any kind of spread over the renminbi deposit rate will attract a lot of investor interest,” he said, referring to the yuan by its other name.
China is allowing greater use of its currency in global trade to reduce reliance on the dollar, and opened the yuan bond market in Hong Kong to overseas firms in February. The Ministry of Finance announced plans to sell 8 billion yuan of securities in the city on Nov. 30.
HSBC Holdings Plc, which controls two of the Kong Kong’s three biggest banks, offers 0.71% interest on deposits of 500,000 yuan or less placed with it for 12 months.
“Most of the banks in Hong Kong have huge amounts of renminbi deposits,” said Chris Tang, a credit analyst with China Construction Bank Corp. in Hong Kong. “There are little channels to invest in and limited issuers.”
Yields on yuan bonds sold in Hong Kong have fallen this month, with Bank of China Ltd.’s 1 billion yuan of 3.4% notes due September 2011 declining the most with a drop of 31 basis points, according to Bloomberg data. A basis point is 0.01%age point.
Caterpillar has permission from Chinese authorities to transfer proceeds from its yuan bonds to the mainland, the Financial Times reported today, without saying where it got the information. It will use the money to support a leasing unit, the FT said.
Caterpillar will build a manufacturing plant in Tianjin to increase its worldwide capacity for large-engine production, the company said on Nov. 19. “Winning” in China is the top priority, Chief Executive Officer Doug Oberhelman said on a Nov. 15 call with analysts.
Investor demand for yuan-denominated bonds is strong, in part on expectations the currency will continue to appreciate against the dollar, according to Standard Chartered’s Chander.
Yuan deposits at Hong Kong banks more than doubled to a record 149 billion yuan in the six months ended Sept. 30, Hong Kong Monetary Authority data show, while the currency has risen 2.7% since a two-year dollar peg ended on June 19.
Hong Kong’s yuan bond market “is set to grow in leaps and bounds, however the one critical missing ingredient at the moment is domestic liquidity,” Chander said. “People tend to buy and hold here, so there isn’t as much secondary market trading as perhaps the market makers would like.”
With files from Bloomberg
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