McDonald's sells renminbi take-away

As signals go, how could it be bettered? It’s hard to see how China could choose a more appropriate and iconic borrower to pave the way for further internationalisation of its currency.

Yesterday, McDonald's Corporation – the fast-food and burger joint -- became the first multi-national non-financial corporate to issue a renminbi-denominated bond in Hong Kong. The Rmb200 million ($29.5 million) deal, although small, promises to open up a new funding venue for international companies to raise working capital for their China operations.

It is one further step towards the internationalisation of China’s currency, the renminbi, despite the continued maintenance of strict currency controls on the country’s capital account.

While many investors and commentators have focused on the de-pegging of the renminbi against the US dollar in June, the Chinese central bank has moved rapidly to expand the use of renminbi for trade, borrowing and investment.

The McDonald's notes, issued out of a euro medium-term note programme, pay a 3% coupon, have a three-year tenor, and were offered at par to institutional investors. The issuing entity was the parent company, not the Chinese subsidiary, which is rated single-A by Standard & Poor’s and A3 by Moody’s.

The issue was "multi-times” subscribed, according to a spokesperson at Standard Chartered, which was the sole lead manager. The deal is non-SEC registered, so US investors were side-lined. Private banks were substantial buyers, said the spokesperson.

“We are pleased to be unveiling a renminbi bond offering by a globally recognised household name,” said Sundeep Bhandari, Standard Chartered’s regional head of global markets, Northeast Asia.

"It took several weeks to gain approval from China’s State Administration of Foreign Exchange (SAFE), and the bank had approached several other multi-nationals," he added.

However, it would be hard to find a name which could represent more the intent and ambition of China in its promotion of the renminbi as an international currency. McDonald's is, perhaps, the most widely recognised US brand in the world.

Bhandari pointed out that renminbi deposits have been rising in Hong Kong, yet there is a shortage of attractive assets and savings accounts pay less than 1.5%. He expects that a renminbi-denominated issue specifically targeted at retail investors is likely soon.

Benjamin Hung, Standard Chartered (Hong Kong)’s chief executive officer, commented: “As a major player in Hong Kong, we are very delighted with the pace of the renminbi market development process in Hong Kong”.

Separately, on August 17, the People's Bank of China approved foreign central banks and all renminbi clearing banks participating in its renminbi trade settlement scheme to enter its Rmb20 trillion onshore inter-bank bond market with immediate effect.

As HSBC analysts pointed out in a paper released yesterday: “This is the fourth move in less than two months by Beijing towards the eventual internationalisation of the renminbi, and comes just a month after the liberalisation of renminbi transactions in Hong Kong”.

“We expect the pace at which new renminbi investment channels are being opened up to foreign renminbi holders to further steepen,” they added.