You can’t grow a company without effective financing,” notes Marc Monyek, senior director of Asia Pacific Middle East finance for Oak Brook, Ill.-based McDonald’s. China is the company’s fastest growing market: $26 billion McDonald’s has more than 1,300 restaurants in the country, and between 2006 and 2010 its China revenues grew from $782 million to $1.5 billion. Accordingly, when China opened its offshore market for renminbi-denominated bonds—dubbed “dim sum” bonds—to foreign corporations, McDonald’s was keen to access the market.
McDonald’s had explored the possibility of issuing renminbi bonds several times over the previous six years but conditions had never been right. But in 2010, regulators permitted multinational corporations to issue renminbi-denominated bonds in Hong Kong, giving investors a new vehicle for the deposits that had been rapidly building up in the offshore market. Monyek jumped at the chance to access the market first.
“Standard Chartered called me with the idea in May and we worked on it as fast as was practical,” says Monyek. “We got the approvals done in August, and we went to market the day that we got the approvals.”
A flurry of activity took place as the company raced to issue its bonds ahead of other multinationals. As soon as it received the approvals from Shanghai, the documentation was taken on the first flight to Guangzhou to be signed off by the local office of China’s State Administration of Foreign Exchange (SAFE). That afternoon, McDonald’s sold a five-year, 200-million-renminbi bond with a coupon of 3%. Standard Chartered was the sole lead manager.
Once the bond had gone to market, the phones began ringing off the hook in the company’s Hong Kong and Shanghai offices. The issue was 5.5 times oversubscribed and the book closed within two hours.
“We were completely thrilled,” Monyek says. “To us, it showed how important the McDonald’s brand is in China—the Chinese regulators picked us to be first when they presumably could have picked other companies that are noteworthy, successful multinationals.”
The process was not without its challenges. One crucial step was obtaining approval from the People’s Bank of China and SAFE to move the proceeds of the issue back to mainland China. Without a precedent to follow, documentation posed another obstacle, which McDonald’s addressed by using the documentation for its euro medium-term note program as a model.
Among the benefits of issuing offshore RMB bonds is that the cost of funding is much less than the cost of bank financing in mainland China, currently 5.9% for the highest rated companies. “It’s significantly lower than in the China mainland and also is long-term committed funding, which is important to us,” Monyek says. “We have wonderful relationships with banks that support us through financing lines, but this gives us an alternative set of funding for our China company.”
It was months before another multinational company issued an offshore RMB bond, but a number of other companies have since followed in McDonald’s footsteps, including Caterpillar, Volkswagen and Unilever. As the first foreign issuer, McDonald’s has been the focus of much attention from companies interested in following suit. “We’ve received a lot of calls from different companies, some very prominent ones, asking for our advice on how to proceed,” Monyek says. Companies looking to access the market should exercise patience, work on their documentation and choose their lead banks carefully, he says.
McDonald’s would certainly consider issuing another renminbi bond in the future, Monyek says. “We were excited to be the first multinational allowed to issue in this market. If we have the opportunity to access this market again, we would very much welcome it.”