【2010.8.20 彭博社】McDonald’s Yuan Bonds Set Benchmark for China: Credit Markets

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Aug. 20 (Bloomberg) -- McDonald’s Corp.’s yuan bond sale, the first by a foreign company in Hong Kong, may pave the way for a new global debt market as China seeks to capitalize on its status as the engine of the world’s economic recovery.

McDonald’s, which opened its first 1,000 restaurants in China faster than any other country outside the U.S., sold 200 million yuan ($29 million) of 3 percent notes due in September 2013. Wal-Mart Stores Inc., the world’s largest retailer, has said it’s considering issuing such notes.

China, the fastest-growing major economy, changed rules in February to let foreign companies issue yuan-denominated bonds through Hong Kong to strengthen the former British colony’s position as a financial center and promote the yuan for global commerce. Yuan bonds issued by Chinese companies have returned 6 percent this year, their best performance since 2005, according to a Bank of America Merrill Lynch index tracking 1.38 trillion yuan of debt.

“This is going to become a popular trend,” said Donald Straszheim, a Los Angeles-based senior managing director and head of China research at International Strategy & Investment Group. “There are hundreds of global companies wanting to do more business in China and they will want to be involved in the country’s evolving credit market.”

Oak Brook, Illinois-based McDonald’s issue, the first by a non-financial company from outside China and Hong Kong, follows a 1.38 billion-yuan deal by Gordon Wu’s Hopewell Highway Infrastructure Ltd. Bank of East Asia Ltd. and HSBC Holdings Plc’s China unit became the first non-Chinese banks to sell yuan bonds in 2009, Bloomberg data show. Wal-Mart, based in Bentonville, Arkansas, said in March it was considering debt in the Chinese currency.

‘Big Bang’

China is on the cusp of a “big bang” of reforms that will give foreign investors greater access to China’s capital markets, Nomura Holdings Inc. analysts led by Hong Kong-based Sean Darby wrote in a report on Aug. 18.

McDonald’s yuan bonds are its smallest debt issue since 2004, when it raised $25 million from 5.375 percent notes due 2016, which were bought back, according to data compiled by Bloomberg.

The yuan bonds compare with McDonald’s $500 million of 4.3 percent 2013 notes, which were last quoted at 108.34 cents on the dollar to yield 0.942 percent, according to bond-price reporting system Trace.

Regulatory Capital

Elsewhere in credit markets, the Basel Committee on Banking Supervision, seeking to force bond investors to bear some costs in future bailouts, proposed that debt counted as bank capital be converted to stock or written off in a financial crisis. Carlyle Group completed the sale of 1.5 billion euros ($1.9 billion) of leveraged loans.

Corporate bond sales worldwide declined 40 percent this week to $31.4 billion, from $52.6 billion in the four days ended Aug. 12, Bloomberg data show. For the year, issuance fell 28.5 percent to $1.91 trillion, from $2.67 trillion.

The extra yield investors demand to own company bonds instead of government debt was unchanged at 177 basis points, according to the Merrill Global Broad Market Corporate Index.

The Basel committee, seeking to avoid a repeat of the crisis when government assistance to failing lenders helped holders of some subordinated bonds avoid losses, said yesterday that all regulatory capital instruments sold by banks should be capable of absorbing losses if a company can’t fund itself.

Banks’ cost of capital may rise as investors demand compensation for the increased risk they won’t be repaid.

“It looks like the banks are going to be paying more for regulatory capital,” said John Raymond, an analyst at credit research firm CreditSights Inc. in London. “They’ll also have to look for a different investor base.”

Leveraged Loans

Washington-based Carlyle, the world’s second-largest private-equity firm, sold the leveraged loans at an average price of about 90 percent of face value, a person familiar with the matter said. Carlyle spokeswoman Rosanna Konarzewski declined to comment.

Bond risk rose in Asia. The Markit iTraxx Australia index rose 5 basis points to 121.5 basis points, according to Westpac Banking Corp. The Markit iTraxx Japan index rose 4 basis points to 114 basis points, Morgan Stanley prices show.

The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 3.25 basis points to a mid-price of 108.9 basis points as of 5:38 p.m. in New York, according to Markit Group Ltd. The Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment- grade ratings increased 4.56 basis points to 110.88, Markit prices show.

Ford, GE

The indexes typically rise as investor confidence deterioriates and fall as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Bonds from Fairfield, Connecticut-based General Electric Co. the world’s largest maker of jet engines, were the most actively traded U.S. corporate securities yesterday by dealers, with 118 trades of $1 million or more, Bloomberg data show. Morgan Stanley of New York ranked second with 115.

Dearborn, Michigan-based Ford Motor Co., with 76 trades, was the most active in junk bonds, which are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

In emerging markets, the extra yield investors demand to own corporate bonds rather than government debt rose 3 basis points to 271 basis points according to JPMorgan Chase & Co.’s Emerging Market Bond index.

175 Restaurants

McDonald’s sold its bonds in a private placement to Hong Kong institutional and professional investors, it said in a statement yesterday. “This gives us access to new funding to support growth in China,” said Lisa Howard, a spokeswoman for the restaurant chain. “We are very confident in the Chinese market and have a strong plan to grow our business in China,” she said. Fitch Ratings graded the 200 million yuan debt at A, its sixth-highest investment grade.

Money raised will provide working capital for expansion in China, where the company will open as many as 175 restaurants this year, according to the statement.

“Consumer demand is strong in that part of the world, and there’s opportunity to open up more stores in some of the more inland type cities. It seems like a good move on McDonald’s part,” said Nicholas Reitenbach, New York-based senior international portfolio manager at Wilkinson O’Grady & Co. Inc., which has about $1.8 billion in assets.

Currency Opportunity

A market in yuan-denominated debt issued by foreign companies would give investors the chance to speculate on China’s currency, which is forecast by economists to strengthen, said Georg Grodzki, head of credit research at Legal & General Investment Management.

“For many investors this type of product would be more appealing and suitable than Chinese corporate credit risk and almost allows a pure currency play with the benefit of some extra yield,” said London-based Grodzki, who helps oversee 300 billion pounds ($468 billion) of investments. “Liquidity in corporate yuan debt remains to be tested and currency convertibility may cause issues. Investors should be mindful of such risks and prepare a plan B.”

China is seeking to broaden use of the yuan, also known as the renminbi, after first approving the currency to settle cross-border trade with Hong Kong in June 2009.

China’s and Hong Kong’s central banks signed agreements on July 19 to ease restrictions on yuan transfers between banks and companies in the city, and also agreed the ex-colony would have no restrictions on yuan deposit holders transferring cash to buy wealth-management products.

Second-Biggest Economy

The People’s Bank of China in Beijing said Aug. 17 it will let overseas financial institutions invest yuan holdings in the onshore interbank bond market, while keeping limits on the conversion of foreign currency for such investments.

China overtook Japan in the second quarter to become the world’s second-biggest economy and grew 10.3 percent in the first half.

The central bank set the yuan’s reference rate at 6.7884 per dollar today. The yuan has risen 0.5 percent against the dollar since China ended a two-year peg versus the U.S. currency on June 19.

Trading in yuan-denominated corporate bonds issued by Chinese companies rose to $613.77 billion in the second quarter, a 43 percent increase from the previous three-month period, according to the Asian Development Bank in Manila. Chinese companies had $492 billion of yuan debt outstanding at the end of the first quarter, up 67.5 percent from a year earlier, ADB data show.

Yuan bonds have lagged behind global corporate debt, which returned 8.4 percent this year, according to Bank of America index data. Japanese corporate debt handed investors 2.5 percent, the figures show.

Foreign companies selling bonds in yuan “is a potential growth area,” said Alex Garrard, a partner at BTG Asset Management U.K. LLP in London. “We’ve become aware of some interest among international issuers in other BRIC currencies,” he said, referring to the emerging-market nations of Brazil, Russia, India and China.

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