Japanese companies issue record amount of debt to secure cheap funds
19/09/2016 04:59
* Corporate bond issuance on track for record quarter
* Percentage of longer maturities surges on year
* Recent JGB steepening trend could lead to slowdown
By Lisa Twaronite and Hiroko Yoneda
TOKYO, Sept 19 (Reuters) - Japanese companies have sold a
record amount of bonds this quarter, taking advantage of
negative interest rates and yield-starved investors to lock in
cheap long-term funding.
For the July-September quarter, Japanese companies are on
track to issue over 4 trillion yen ($39.20 billion) in bonds,
more than double the 1.5 trillion yen booked in the same period
last year, according to data from DealWatch and Thomson Reuters.
Strikingly, 1.83 trillion yen of the debt is in maturities
of more than 20 years, versus just 70 billion yen in the same
period last year.
The surge comes after the Bank of Japan adopted negative
interest rates in February as part of its stimulus measures.
Tokyu Corp 9005.T sold 10 billion yen of 20-year bonds and
10 billion yen of 30-year bonds on Friday, following a spate of
issues from big names such as Softbank Group Corp 9984.T and
Mitsubishi Corp 8058.T .
"I've never seen this kind of volume in the past," said
Tadashi Matsukawa, head of fixed income investment at PineBridge
Investments in Tokyo.
Some companies have issued superlong notes to invest in new
plant and equipment, which would stimulate economic growth and
highlight what low and negative interest rates are supposed to
achieve.
But most are raising funds to rollover or repay debt more
cheaply.
Pharmaceutical firm Daiichi Sankyo Co 4568.T issued 100
billion yen of 20- and 30-year bonds in July, of which 30
billion yen will be used to buy back its own shares, while Aisin
Seiki 7259.T issued 10 billion in 20-year notes last week for
the same purpose.
"Some others might be interested in doing this - buying back
shares, and issuing straight bonds. But they might not say this
is what they will use the proceeds for," said Eiichiro Tani,
director, credit trading at Daiwa Securities in Tokyo.
While a boon to companies, the BOJ's negative rate policy
has created a dilemma for Japanese fixed income investors.
"In order to get positive yields, we have to choose between
taking on more credit risk, and buying lower-rated issues, or
more duration risk, and buying higher-rated bonds with longer
maturities," said a chief portfolio manager of a Tokyo-based
fixed-income fund.
The surge in superlong issuance has paused for now as
long-term bond yields have surged. The 30-year JGB yield hit a
six-month high of 0.605 percent JP30YTN=JBTC on Wednesday, up
from a record low of 0.015 percent in July.
Rising yields, which makes borrowing more expensive, are
driven by market expectations that the BOJ might try to steepen
the yield curve at its policy meeting on Wednesday, possibly by
tapering its purchases of longer-term debt and buying more
short-term paper. urn:newsml:reuters.com:*:nL3N1BP4PU
The central banks may also shift its prime policy focus to
interest rates from base money now, the sources said.
Daiwa's Tani said that while the best time for issuers had
probably passed, companies would likely return to the market
once uncertainty over the BOJ's policy had passed.
"I think the corporate bond market will remain active. The
yield curve may be steepening now, but investors are hungry for
yield and I expect to see a cycle back to flattening once the
BOJ's intention has been clarified," said Takuji Okubo, chief
economist at Japan Macro Advisors.
"I think there are ongoing demands from corporates to lock
in low yields." Okubo said.
($1 = 102.0400 yen)
(Reporting by Lisa Twaronite, and Hiroko Yoneda of DealWatch;
Editing by Kim Coghill)
((lisa.twaronite@thomsonreuters.com;)(+81 3 6441 1870; Reuters
Messaging: lisa.twaronite.thomsonreuters.com@reuters.net))
Keywords: JAPAN BONDS/RECORD