The heavy-equipment maker is making use of the yuan-bond market for a third time.
Wanting to rely less on local banks and dollar financing, Caterpillar issued its third round of dim sum bonds this week. The company reportedly sold 1.26 billion yuan ($199 million) of two-year notes with a reported 2.8 to 2.9 percent yield.
Caterpillar has been looking to further develop its capital market capabilities in China over the last several years. Many companies are discovering that the dim sum bond market is the best financing tool for local business, citing the low financing costs as well as the fact that funding in the Chinese currency can also help the companies compensate for foreign exchange risks.
The latest issue’s yield, while higher than previous issues, still makes sense for Caterpillar as financing from Chinese banks can run upwards of 7 percent. Also, perhaps as a consequence of economic crisis, companies have been exploring other ways to finance global projects. And Caterpillar has been a company at the forefront. In February of this year Caterpillar made use of the US Ex-Im Bank’s Supply-Chain Finance Guarantee program to help finance a mining equipment sale to a Canadian company (see related story here).
Taking its cue from McDonald’s, Caterpillar first jumped into the yuan bond maker in November 2010 –only a few months after China’s government relaxed rules for yuan circulation in Hong Kong – with a 1 billion two-year bond with a 2 percent yield. And in July last year, the company sold its second two-year yuan bond, raising 2.3 billion yuan and paying a yield of 1.35 percent.
Despite investors being more selective in the dim sum market – particularly after fraud allegations against Chinese company Sino-Forest – there was a surge in issuance in 2011 — close to $15 billion (vs. about $6 billion in 2010); 2012 is looking like it will follow suit.