Mitsubishi Materials Corp., (5711) Japan’s largest producer of base metals by sales, is planning its first yuan-denominated loan in the nation to tap rates that are lower than those offered by Chinese lenders.
The company may borrow the yuan equivalent of 500 million yen ($6.3 million) to 600 million yen and plans to complete the facility by January, Hideyasu Itagaki, the finance group general manager at Mitsubishi Materials, said in an interview at the company’s Tokyo headquarters yesterday. The funds will be used to hedge against exchange rate fluctuations and help finance operations at a new factory in China, he said.
The producer of copper, zinc and lead joins Topy Industries Ltd. (7231), which in April borrowed 120 million yuan ($19 million) from Mizuho Corporate Bank Ltd. and Bank of China Ltd.’s Tokyo branch, in taking advantage of relaxed regulations on offshore funding denominated in the Chinese currency that came in effect in 2010. China’s six-month best lending rate has remained at 5.85 percent since June 8, compared with 3 percent for the six- month Hong Kong interbank yuan reference rate, data compiled by Bloomberg show.
“There’s a marked increase in demand for yuan funding from Japanese companies and it’s cheaper to borrow offshore than in China,” Takamoto Suzuki, a senior economist at Mizuho Research Institute Ltd., said in a telephone interview today. “China plans to liberalize borrowing rates by 2015 and internationalize the yuan. The process may advance faster than we expect.”
Mitsubishi Materials may also consider selling yuan- denominated bonds, Itagaki said, declining to elaborate. “Raising funding for overseas units in local currency helps reduce exchange rate risks,” a policy the company already pursues for its units in North America, Thailand and Indonesia, he said.
Mitsubishi Materials has 235.5 billion yen of bonds and loans outstanding, including a 20 billion yen term loan facility due in September and 10 billion yen of notes maturing next month, according to data compiled by Bloomberg.