Negative rates encourage Japan firms to issue long-dated bonds

Keio

04/03/2016 09:51

* Corporate issuers seen opting for long-term debt as yields 
sink 
    * BOJ's adoption of negative rates cuts borrowing costs via 
bonds 
    * Corp debt boon unlikely as borrowers can increase bank 
loans 
 
    By Shinichi Saoshiro and Yasunori Fukui 
    TOKYO, March 4 (Reuters) - The Bank of Japan's (BOJ) 
decision to impose negative interest rates has spurred some 
companies to seek to lock in cheap funding with long maturities 
that investors once balked at. 
    Traditionally, investors deemed only a few companies such as 
utilities and railway corporations to have sufficiently reliable 
income to issue bonds with maturities beyond 10 years. For 
everyone else, uncertainty about long-term profitability blocked 
deals.  
    But now, as yields on short-term bonds have evaporated since 
the BOJ cut interest rates to negative levels in its latest bid 
to revitalise the Japanese economy, investors have increasingly 
sought to earn the higher yields that long-term bonds offer. 
    Railway operators have recently raised funds at long 
maturities,  but so have a food company and a discount shop 
chain. 
    "The pool of investment vehicles with positive yields is 
shrinking fast, and investors pursuing an absolute value 
strategy are moving quickly to secure bonds that still offer 
yield," said Toshihiro Uomoto, chief credit strategist at Nomura 
Securities. 
    In February, West Japan Railway Co.  9021.T  launched 10 
billion yen ($89.53 million) of 40-year debt, the longest 
maturity ever issued by a Japanese company, according to 
DealWatch, a Thomson Reuters Japanese language service.   
    An official at the railway operator, known as JR West, said 
it wanted to diversify its borrowing and went for an ultra-long 
bond based on strong investor demand. 
    The bonds, which will repay debt, were sold at 45.5 basis 
points over Libor (London Interbank Offered Rate), with life 
insurers among the main buyers. 
    They were quickly followed by food company Ajinomoto Co Inc. 
 2802.T , which launched 25 billion yen ($220 million) of 
20-year bonds, an unusually long maturity for a manufacturer. 
     
    INVESTORS UNDER PRESSURE 
    With 80 percent of Japanese government bonds, or maturities 
of up to 11 years, trading at negative yields, investors are 
under to pressure to find investments with decent returns. 
    For their part, companies like such long-dated bonds because 
it allows them to secure low-cost financing for a long time. 
    "We are likely to see more companies launch bonds in 
durations like 20-years, a maturity which had been dormant 
issuance-wise," said Takayuki Atake, manager of credit research 
at SMBC Nikko Securities. 
    On Friday, rail operator Keio Corp  9008.T  launched 15-year 
bonds, its longest such issue since 20-year bonds in 2007,  
while Don Quijote Holdings  7532.T , a discount shop chain, sold 
10-year bonds, its longest maturity ever. 
    While analysts expect issuance to continue, they doubt it 
will provide a big windfall for the Japanese corporate bond 
market.  
    That market has been shrinking and "is unlikely to grow 
much," Atake said. "Banks try to actively lend money under BOJ's 
easy policy and it is cheaper for companies to borrow from them 
rather than issue debt."  
    According to the Japan Securities Dealers' Association, 
total corporate bond issuance fell to a 10-year low of 6.848 
trillion yen ($61.31 billion) in 2015. 
     
($1 = 113.66 yen) 
 
 (Reporting by Yasunori Fukui, DealWatch and Shinichi Saoshiro; 
Editing by Richard Borsuk) 
 ((shinichi.saoshiro@thomsonreuters.com; Reuters Messaging: 
shinichi.saoshiro.reuters.com@reuters.net)) 
 
Keywords: JAPAN MARKETS/CORPBONDS