Caterpillar looks to fund growth in China

Struggling to complete orders in time, the heavy equipment manufacturer is issuing its third dim sum bond offering.

By Trefis Mar 19, 2012 10:44AM
Caterpillar (CAT), the construction and mining equipment manufacturer, has had a stellar year with its stock up nearly 25% year-to-date after the company delivered record 2011 earnings. Now, the company is again looking to raise money in the Hong Kong bond market to fund its expansion in China.

The company has gathered a huge backlog and is struggling to raise capacity and complete orders in time, necessitating further investments in this market. This is especially exaggerated for mining equipment. Caterpillar said it won't be able to deliver on some orders for large mining trucks until 2014.

The demand in emerging economies for construction and mining equipment, coupled with the rebuilding efforts on in Japan after the devastating earthquake, has kept the company working at full capacity, and this is expected to continue for quite some time now.

Caterpillar is focusing on China as its primary market given its size and growth potential. It expects the inland China's infrastructure to start developing at the same pace as the coastal regions, thus driving demand for its products. Construction and machinery are the most important business line for Caterpillar, accounting for nearly 59% of its stock value.

Caterpillar Share of Global Machinery Market

Caterpillar has sold CNY 1.26 billion (US$200 million) of offshore yuan-denominated bonds with a maturity of two years at a 2.9% yield, according to a term sheet seen by Dow Jones Newswires. The bond is believed to have a 2.9%-3.1% yield range, but the company has stuck to the tighter end of this range. This is the third dim sum bond issued by Caterpillar.

CAT issued its first dim sum bond in November 2010, months after Chinese government relaxed its rules for yuan circulation in Hong Kong. It helped the company raise CNY 1 billion at 2% yield rate and a maturity of two years. The second offering was made by the company in July last year.

This time, the company raised CNY 2.3 billion by issuing two year maturity bonds with a yield of 1.35%. The dim sum bond market was believed to be dead as there were concerns that the yuan remained undervalued. However, Caterpillar's successful issue and the higher yield it offers compared to previous occasions shows that the investors are ready to selectively participate in this market amidst concerns that yuan wont appreciate as quickly as before. This bond offering was done by the financial unit of Caterpillar, called Caterpillar Financial Services Corp.

See our full analysis for Caterpillar here.

Tags: CAT


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
267 rated 2
455 rated 3
612 rated 4
682 rated 5
695 rated 6
632 rated 7
472 rated 8
279 rated 9
147 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.