2 Hungry Companies and Their Dim Sum Diets

Both Ford (NYSE: F  ) and Caterpillar (NYSE: CAT  ) are hungry for a bigger share of the growing Chinese market, and they're biting into dim sum bonds to whet their appetites.

Denominated in Chinese yuan but issued in Hong Kong, dim sum bonds allow companies to raise cheaper funds in yuan, as the credit condition in China is still tight because of inflationary pressures. Moreover, raising funds in the offshore yuan market also helps mitigate risks associated with foreign exchange.

Growing in the Middle Kingdom
Ford is setting up more production facilities and aggressively expanding its dealership network in the country. It's planning to introduce 15 vehicles and double its dealership outlets by 2015. Last month, Ford opened its fourth assembly plant in China, making it the biggest global production location for the company after Michigan. Ford's capacity in China has now risen to 600,000 vehicles a year. Its sales from China in 2011 were about 7% higher from 2010 levels, and Ford would like that figure to rise.

Similarly, a major part of Caterpillar's international growth plans is focused on China. Revenue from the Asia-Pacific region surged a staggering 45% in 2011 from a year ago, and China accounted for almost a quarter of the region's revenue. But Cat wants to get bigger in the Middle Kingdom and is eyeing greater market share. Apart from setting up several new manufacturing facilities and expanding research and development, Cat is also trying to acquire China-based mining company ERA Mining Machinery.

Obviously, such big plans require huge investments in local currency. That's where the dim sum bonds come into the picture.

Biting into dim sums
For Ford, this will be its first such experience. It has raised roughly $158 million (1 billion RMB) through the sale proceeds that will be used for "corporate purposes" in its Chinese operations. As for Caterpillar, this is its third yuan-denominated bond issue. It has raised around $199 million (1.26 billion RMB).

The Foolish bottom line
Focusing on high-growth regions like China makes sense for both the companies, and they seem to be doing the right thing by raising capital through dim sum bonds. Keep tracking Ford and Caterpillar as they expand and grow bigger by adding them to your stock Watchlist, our free and personalized stock-tracking service.

And if companies looking to China for growth interest you, Ford and Cat aren't the only ones. There are others finding strong growth thanks to savvy execution in the world's fastest-growing new markets. Motley Fool analysts have identified three big-name companies that are particularly well positioned to profit -- and you can learn more right now with our new free report: "3 American Companies Set to Dominate the World." It's completely free for Fool readers, but only for a limited time -- grab your copy now.

Fool contributor Neha Chamaria owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 20, 2012, at 1:06 AM, midasreturns wrote:

    Infact I would also suggest CMI - Cummins. It's a very strong player in Asia. The company has tie ups and joint ventures with lots of local companies in India and China.

    Moreover with improving road infrastructure, the demand for trucks will go up. CMI is ready to grab it. Not only trucks but electrical generators from CMI is in high demand in South East Asian countries.

    Company's EPS has been growing at 80% annually in last few years. It is cheaper than peers such as CAT, etc.

  • Report this Comment On March 20, 2012, at 2:08 AM, midasreturns wrote:

    By the way, how do I write articles on motley fool?

    Thanks

    Sumeet

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