UPS turns to offshore renminbi for commercial paper funding

Atlanta-headquartered package delivery company UPS closed a Rmb630 million ($99 million) offshore renminbi-denominated commercial paper (CP) transaction on Friday — making it the first foreign non-financial company to do so. Given the small issue size, UPS’s move to tap the CP market was probably more symbolic than anything else, though it is expected to continue issuing in the market.

However, as more borrowers are pushing tenors in the dim sum market, the UPS deal does reflect that a number are also keen to issue short-dated paper, and there is demand for it. Indeed, banks have been issuing short-dated certificates of deposit for some time.

“The offshore deliverable renminbi market has experienced rapid development since China started promoting the use of its currency in international transactions,” said Andy Dolny, UPS’s treasurer and chief investor relations officer, in a release. “Companies like UPS can leverage this liquid short-dated CNH money market as an alternative means of funding investments in China.”

Aside from UPS, ICBC and Standard Chartered have also tapped offshore renminbi denominated CP for funds. So far, the amount of offshore renminbi-denominated CP is a drop in the ocean compared to the outstanding commercial paper denominated in US dollars, euros and sterling — which is said to be about $550 billion.

However, with growing acceptance of the offshore renminbi as an international currency, more banks and companies are expected to issue commercial paper.

The UPS deal was sold to asset managers and companies, according to a source. The transaction was split into two maturities — a Rmb300 million 90-day portion that yields 2.2% and a Rmb330 million 52-day portion that yields 2.15%. In comparison, six-month offshore renminbi certificates of deposits issued by banks are said to be yielding about 3%.

According to a source, the company has not sought any approvals to remit the funds. But if it is for trade settlement purposes, which seems to be the case, it will not need any approvals to bring the funds onshore.

“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,” added UPS Asia-Pacific president Brendan Canavan in the release.

UPS serves more than 330 cities in China, which is the company’s biggest growth market. The company has been investing significantly in its technology and logistics infrastructure in China since 2002 — it has invested more than $1 billion so far this year.

UPS’s CP was issued off its existing €1 billion euro commercial paper programme. The company has been a US commercial paper issuer since 1992 and a euro commercial paper issuer since 2005, with a rating of A-1+ by Standard & Poor’s and P-1 by Moody’s. Goldman Sachs was the dealer.