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McDonald’s secures 40 billion yen loan from Japanese banks; to be put towards expansion in China?

February 20, 2009
By Ken Worsley


Friday morning’s edition of the Nikkei is reporting that McDonald’s has secured a 40 billion yen syndicated loan from Mizuho Corporate Bank, Mitsui Sumitomo, and Bank of Tokyo-Mitsubishi UFJ. Nine other regional banks are also contributing to the 62 month loan, which will be denominated in yen.

Although the Nikkei says the loan is to be used for “business operations,” no specific information as to what those operations might be is available at this time. Despite the global economic and financial crisis, McDonald’s has been performing well as consumers seek cheaper purchasing solutions, and reported a 7.1% increase in sales in January. In 2008, McDonald’s posted record high sales in Japan.

Although the story has been picked up some some English language media sources, none seem to be making the connection to recent speculation that McDonald’s is seeking to expand in the Chinese market. On Wednesday, Brian Durkin, the vice president of development for McDonald’s in China, told reporters that the firm’s China operations had not been impacted by the economic downturn. ABC News provides a very interesting quote from Mr Durkin: “McDonald’s customers, when they go out shopping, they may not buy furniture or clothes, but they get hungry in the process.”

This sounds like a “be everywhere” strategy, which has certainly worked for McDonald’s in many places. The article goes on to tell us that McDonald’s intends to open 500 new shops in China over the next three years. Although this does not seem like a huge number of new shops, it seems clear from Mr Durkin’s comments that McDonald’s is looking at opening more restaurants in strategically important locations.

So, here are the questions: How much will it cost McDonald’s to open 500 new shops in China? At what interest rate did McDonald’s secure this syndicate loan? Why couldn’t Chinese banks (assuming the “business operations” in question are to be conducted in China) have raised their profile by securing the funds? Are Japanese banks using this loan to grab headlines?

Filed Under Banking, Retail 

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Comments

6 Responses to “McDonald’s secures 40 billion yen loan from Japanese banks; to be put towards expansion in China?”

  1. Baldrick on February 20th, 2009 2:46 am

    Interesting that there has been no speculation from media sources, and no statement from Makkers as to how the funds are to be used. As a shareholder, I’d like to hear something! The share price went down after this news came out. Their website is awful for press releases and investor relations. I want to know what’s going on since I have money in this firm.

  2. Matt on February 23rd, 2009 12:19 pm

    Just a couple of guesses at why McDonalds is securing yen denominated loans in the Japanese capital markets (rather than procuring the funds from Chinese banks):
    1. McDonalds is speculating on the yen? The carry trade seems mostly unwound and that persistent current account surplus is gone. Those are headwinds for the yen and the rates have to be extremely favorable for a company with McDonalds’ financials and prospects.
    2. Prof. Pettis (http://mpettis.com/) has given me the impression on numerous occasions that the Chinese banking system is a lot less healthy than it appears at first glance. I tend to subscribe to this view. NPLs seem to be a serious problem that could be stressing liquidity (such is the fate of communism, I suspect). There may also be a lot more politics in the Chinese lending market than we are crediting. McDonalds isn’t necessarily a win when you have a bunch of provincial governments holding their cups out for a limited pool of funds. Additionally, I would again point to the rate differential and the likely strength of RMB:JPY.

    I hope McDonalds gets bashed here pretty soon. I’ve wanted a piece of MCD for years, but it never falls into my price range.

  3. Curzon on February 23rd, 2009 6:28 pm

    Smooth move by McD, borrowing in yen at a historic high, and set to repay in a few years when the yen will likely be a lot cheaper — they’ll probably make more money off the spread.

  4. Ken Worsley on February 27th, 2009 12:54 am

    Matt and Curzon, I think you’re both right. I especially agree with #2 of your comment, Matt, from what I’ve heard coming out of China anecdotally.

    Bladrick: have you ever read the McDonald’s “Values in Practice” blog? It’s very unintentionally funny.

  5. Joseph on November 8th, 2009 9:23 pm

    The situation in Japan is unique in the world today. Savings deposits exceed borrowings by the trilions. Interest rate has been at the floor for years. Japanese funds are challenged to return a reasonable yield to investors.

    I wonder what is the process to borrow JPY for opportunistic real estate acquisitions, investments and development in Singapore, Malaysia and Indonesia, where yields are potentially in the double digits? Or are such loan arrangements only for large corporates such as McD?

    Also, are there funds and private investors looking to invest in real estate in the same countries?

    I welcome comments to jlye03@yahoo.com. Thank you.

  6. Ken Worsley on November 9th, 2009 4:10 pm

    Google carry trade.

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