Billionaire Hiroshi Mikitani, chairman and chief executive officer of Rakuten Inc.,... Read More
Coca-Cola East Japan Co. offered notes for the first time on Sept. 12, one of 157 companies that have issued debentures this year, the most in Bloomberg-compiled data going back to 1999. Medical manufacturer Maruho Co. last month became the first closely held company without a listed parent or government ownership to debut debt in 2014. Billionaire Hiroshi Mikitani’s Rakuten Inc. (4755) also sold bonds for the first time.
The Bank of Japan’s stimulus has cut corporate borrowing costs to an 11-year low, spurring companies to sell 5 trillion yen ($46 billion) of notes
since the fiscal year started April 1, a four-year high, data compiled by Bloomberg show. The 3 percent gain from a year earlier is in line with Prime Minister Shinzo Abe’s goal of reviving corporate investment to boost the world’s third-largest economy after 15 years of deflation.
“There’s a lot of incentive for companies to raise funds with rates so low and spreads extremely tight,” said Satoko Terasawa, the chief credit analyst in Tokyo at Mizuho Securities Co., a unit of the nation’s third-biggest bank. “As Japan’s corporate sector improves overall in creditworthiness, there is value for investors in buying rarer names.”
Falling Yields
The average yield on Japanese corporate bonds is 0.38 percent, one basis point from the lowest since June 2003, according to Bank of America Merrill Lynch data. The rate for companies worldwide is 2.68 percent, the data show. On a parent basis 157 companies have sold notes so far this year, an increase of five from the same period in 2013 and 26 from 2012, according to data compiled by Bloomberg.Coca-Cola East (2580) issued 14 billion yen of three-year notes at seven basis points more than government debt on Sept. 12, according to Bloomberg-compiled data. The publicly-listed company plans to use the funds to invest in production facilities and to upgrade systems, according to Akira Kaneko, at the drink maker’s investor relations department in Tokyo.
“We considered both equity and a bank loan as well as straight bonds but after considering the matter comprehensively in terms of size, maturity and cost, we decided to sell straight bonds,” Kaneko said by phone yesterday.
Maruho Bonds
Maruho, a dermatological medicine manufacturer dating back to 1915 with operations in Europe and the U.S., decided to offer notes to boost its visibility to outside parties, even though a loan would have been cheaper, said Nobuo Aritake, an executive at the company based in Osaka, western Japan. The manufacturer had sales of 64.3 billion yen and almost 1,300 employees as of September 2013, according to its bond filing.“For a drug company there are always investment opportunities and the bond sale allows us to move speedily if needed,” Aritake said in a telephone interview.
JA Mitsui Leasing Ltd., a closely held company whose shareholders include Sumitomo Mitsui Banking Corp. (8316) and Mitsui Sumitomo Insurance Co., two of Japan’s largest financial institutions, sold notes to the public for the first time Sept. 12. Maruho and JA Mitsui are both evaluated as A- by Rating & Investment Information Inc., the fourth lowest investment grade.
Limited disclosure by closely-held companies compared with publicly-trade peers means their bonds aren’t an easy investment for many fund managers, according to Mizuho’s Terasawa. A large increase in the sale of non-listed companies’ notes is unlikely, she said.
Investment Difficulty
“If unlisted companies don’t provide sufficient disclosure, fund managers can’t analyze the company’s creditworthiness enough, making investment very difficult,” said Kenji Sakaguchi, the chief investment officer in Tokyo at Prudential Investment Management Japan Co., which managed the equivalent of $142 billion as of the end of June. “Simply having a credit rating alone isn’t enough.”Rakuten registered to sell as much as 100 billion yen in bonds on Sept. 9, the same day the Tokyo-based company said it plans to buy U.S. rebates website Ebates Inc. for $1 billion in cash. The operator of Japan’s biggest online mall in June issued its first bonds to the public since its foundation in 1997.
Corporate borrowing costs have plunged since the central bank last year began buying about 7 trillion yen of sovereign notes a month to banish deflation. Japan’s benchmark 10-year bond yield has dropped 17 basis points, or 0.17 percentage point, in 2014 to 0.565 percent. The yen weakened to a six-year low of 108.87 against the dollar, before trading at 108.61 as of 5:14 p.m. in Tokyo, down 3 percent from the end of 2013.
“Names we haven’t seen before are coming to the market because of the low interest rates,” said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. “It’s a sellers’ market.”
(An earlier version of this story corrected the Maruho executive’s name.)
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