United Parcel Service Inc. is using a new financial vehicle to raise Chinese yuan, or renminbi, to fuel its ongoing expansion in China, where the Atlanta-based package delivery giant has invested more than $1 billion since 2002.
UPS on June 18 issued in Hong Kong commercial paper denominated in offshore renminbi, a special category of the Chinese currency used by foreign companies raising capital for use on the mainland.
The debt issuance totaled about CNH 630 million, about $100 million.
Commercial paper is often issued on global stock markets by companies looking to raise capital to fund short-term growth. China tightly controls the movement of its currency but has made efforts in recent years to boost use of the renminbi in international transactions.
Until now, foreign companies raising renminbi in Hong Kong have been limited to bonds, which take much longer to mature. UPS is the first non-financial company to issue short-term offshore renminbi debt in Hong Kong.
The move reflects the company’s commitment to growth within China, UPS executives said in a news release.
“This CNH initiative will give UPS more flexibility in payment, collection and future investments in China, ultimately enabling our clients’ businesses to respond more effectively to expanding trade lanes with international markets,” said Brendan Canavan, the newly appointed president of UPS’s Asia Pacific region.
In other words, it reduces the exchange fees and provides a natural hedge for companies like UPS that pay and receive payments in renminbi, said Henry Yu, senior vice president and head of East West Bank‘s Southeast regional office, located in Atlanta.
Major multinationals like McDonald’s Corp. and Caterpillar Inc. have benefited from issuing renminbi bonds in Hong Kong since 2010, said Mr. Yu, who has followed closely China’s efforts to gradually introduce the renminbi to foreign markets.
“Commercial paper is a natural extension of this. The bond is medium- to long-term. The commercial paper is less than a year,” he told GlobalAtlanta.
He said other efforts to liberalize the renminbi include trade settlement, currency swaps and possibly later this year, dual-currency initial public offerings in Hong Kong dollars and renminbi.
“You can see, all this is basically helping China to really open up the currency and to speed up the internationalization process,” Mr. Yu said.
In February, Donald Tong, commissioner of Hong Kong Economic and Trade Office in Washington, said the Communist Party of China’s 12th five-year plan, instituted in 2011, gave Hong Kong the “clear, distinct role” as China’s offshore renminbi business center.
During a trip to Atlanta, he encouraged local companies to use so-called “dim-sum bonds” – those issued in Hong Kong and denominated in offshore renminbi – to fund their China operations.