McDonald's Serves Up Yuan Bonds

China’s masses will get a chance to down more Big Macs. McDonald’s Corp. has become the first multinational to sell a renminbi-denominated bond, in a bid to finance an expanded mainland presence. On August 19 the company issued 200 million yuan ($29 million) of notes through its Hong Kong subsidiary. The three-year notes bear a 3 percent interest rate. McDonald’s, which runs 1,100 restaurants in China, will use the proceeds to open as many as 175 more outlets.

The Chinese-currency issue is being scrutinized by corporate treasurers worldwide, as it represents a potentially significant new source of fundraising for Chinese operations. Up to now, foreign investors have had to transfer foreign currencies, mostly U.S. dollars, to jump-start China projects. “The RMB bond transaction is a milestone in terms of foreign companies coming to Hong Kong and raising RMB bonds in Hong Kong,” says Tee Choon Hong, regional head of capital markets for Northeast Asia at Standard Chartered, which helped McDonald’s arrange the issue. What’s more, he says, such RMB issues “can be done easily.”

The McDonald’s deal points toward Hong Kong’s thriving as China’s major offshore renminbi-trading center. “Chinese companies seeking public listings strengthened Hong Kong dramatically in the 1990s,” says Sundeep Bhandari, regional head of global markets in Northeast Asia for Standard Chartered. “RMB bond sales could have a similar effect in the years ahead, as many foreign companies hoping to expand in China will seek to raise such bonds in Hong Kong.”

The McDonald’s bond sale is another step toward China’s giving foreign companies domestic capital-raising options, contends Hu Yifan, chief economist of Beijing-based Citic Securities Co. “The market expects that foreign corporations will be allowed to issue equities in Shanghai by the end of the year at the earliest,” says Hu. “Probably, it will start with foreign financial institutions, but it will be gradually broadened over time.”

Expected in the not-too-distant future: the listing of foreign companies on China’s stock exchanges. That’s an innovation to rival a mocha frappé.