International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CASE STUDY 12.1

McDonald's Dim Sum Bonds: “Lovin' It”

Patrick J. Schena

The Fletcher School, Tufts University

This case study accompanies Chapter 12 of International Corporate Finance.

On a warm May day in 2010, Marc Monyek, senior director of Asia Pacific Middle East finance for McDonald's, was sitting in his Oak Brook, Illinois, office when he received a call. Standard Chartered Bank presented him with an intriguing idea: Would McDonald's be the first multinational corporate issuer of Chinese renminbi (RMB)-denominated bonds in the fledging yuan market in Hong Kong?¹

The Chinese government maintained a tight hold on both China's capital account and the value of the RMB. Beginning in 2005, Beijing permitted the RMB to appreciate in a carefully managed fashion. Since July 2005, the RMB had appreciated 20.5 percent against the U.S. dollar (see Case Exhibit 12.1). However, much of this appreciation occurred between July 2005 and June 2008, when the RMB increased in value at an annual rate of about 6 percent. Since then, in response to the global financial crisis, the Chinese government had resumed a fixed peg to the U.S. dollar at approximately RMB 6.8/US$l. While it was widely expected that China would eventually resume a managed float, there was no indication when precisely this would occur.

In an effort to gradually expand the international use of the RMB in both trade and finance, Beijing began actively promoting the development of an offshore RMB market in Hong Kong.² RMB ...