Yum Brands serves up dim sum bond

US fast-food operator Yum Brands whets investors’ appetite with Rmb350 million dim sum bond, while Nissan Motors and Khazanah line up.
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Dim sum is not on the menu at Yum Brands' biggest chain, KFC
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<div style="text-align: left;"> Dim sum is not on the menu at Yum Brands' biggest chain, KFC </div>

While G3 bond issuance remains muted, Hong Kong’s dim sum bond market continues to attract a growing universe of borrowers. The latest addition is Yum Brands, a US-based fast-food company, which yesterday evening priced a Rmb350 million ($55 million) three-year bond, its debut foreign currency bond.

The small deal size reflected the issuer’s moderate funding requirements, with the target size said to be Rmb350 million. The bonds priced to yield 2.375%, inside initial price whispers of mid-2%. The books were three times covered.

Bank of China and HSBC were joint bookrunners. The deal is the first non-Asian BBB-rated corporate issue. The notes are expected to be rated Baa3/BBB-/BBB by Moody’s, Standard & Poor’s and Fitch, or one notch away from sub-investment grade, based on Moody’s and S&P’s ratings. According to one banker away from the deal, “achieving a coupon of 2.375% was a pretty good result for a BBB rated credit”.

The bonds feature a change-of-control put at 101 if there is a subsequent downgrade to sub-investment grade. They were issued at par and mature on September 29, 2014.

Hong Kong investors were allocated 81%, Singapore investors 15% and European/other Asian investors 4%. Fund managers were allocated 38%, banks 33%, private banks 28% and companies 1%.

Yum Brands, which is based in Louisville, Kentucky, is the world’s biggest fast-food restaurant company (by number of outlets) and its brands include KFC, Pizza Hut and Taco Bell. In 2010, the company generated more than $11 billion in revenues and opened an average of four restaurants a day outside the US. It has nearly 38,000 restaurants worldwide, of which more than 4,000 restaurants are in China.

It is the third US company to tap the dim sum market, after McDonald’s and Caterpillar, and this is its first non-dollar denominated bond issue.

More foreign borrowers are lining up to tap the nascent offshore renminbi bond market. Japanese car maker Nissan Motors today starts investor meetings for a potential dim sum bond. HSBC and Standard Chartered are arranging the meetings and a deal is expected this week. Nissan is rated BBB+ (stable) by S&P.

Malaysian state investment agency Khazanah Nasional today concludes investor meetings for its debut dim sum bond. BOC International, CIMB and Royal Bank of Scotland are joint bookrunners.

The company is issuing a sukuk with a wakala structure, or an agency contract that is used in Islamic finance. This is the same structure that Khazanah used when it priced its debut S$1.5 billion sukuk last year, which was also the biggest Singapore dollar sukuk.

Khazanah is said to be keen to promote Islamic financing in Hong Kong, which has lagged behind Singapore as a venue for Islamic debt. However, one banker away from the deal notes that there are not many sukuk investors in Hong Kong — where the bulk of dim sum bonds are typically distributed.

“I’m not sure if there is much of an Islamic investor base in Hong Kong and most of Malaysia’s dollar sukuks have been sold to conventional investors, so I’m not sure if this will be any different,” said the banker.

Elsewhere, Lafarge Shui On Cement, a joint venture between French company Lafarge Group and Hong Kong-listed Shui On Construction & Materials, has completed roadshows for a potential dim sum bond but has yet to launch a deal. Citi, HSBC, Mitsubishi UFJ and Standard Chartered are joint bookrunners.

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