Revived corporate bond deals in Japan underline need for funding

Japan Times

28-04-2025

Japanese corporate issuers are rekindling some shelved yen bond deals in a sign of pressing funding needs even as investors seek fatter premiums.
Suntory, one of a slew of firms that canceled or delayed deals in April due to sharp market fluctuations, is considering resuming the sale in May. Another beverage group, Asahi, sold yen bonds on Friday in an offering that was postponed at the start of the month.
Companies paid about 60 basis points more than Japanese sovereign debt on average this month for new issuance, data showed. That's near the highest since June, highlighting how it's become harder for borrowers and buyers to agree on prices. As well as the pulled deals, borrowers failed to sell out bonds in the usually stable local government debt market.
Premiums to sell new bonds have of course risen in global credit markets as well, but volatility is particularly tricky for Japan to navigate given that the market has been less exposed to extreme swings after years of rock-bottom interest rates. It matters right now because there's strong demand for funding from Japanese companies as the economy emerges from years of deflation.
"Many investors are demanding wider spreads as the environment is volatile and there's uncertainty,' said Noritaka Oda, head of debt syndicate at SMBC Nikko Securities, adding that new issuance premiums may rise another five to 10 basis points in the next month or so.
Fund managers are hunting for deals, especially as they look to put funds to work at the start of the financial year in April. Issuers are also trying to pinpoint the best time to sell bonds before the Bank of Japan raises interest rates again, and to meet funding needs.
SoftBank leaned on its individual investor base to raise a record ¥600 billion ($4.2 billion) from retail bonds earlier this month.
Several deals in the Asian dollar bond market were also delayed this month amid unpredictable markets, but those issuers have started to trickle back.
In Japan, corporate bond sales have almost doubled over the past decade to a record last fiscal year, raising the stakes in the once relatively calm market. The turmoil stemming from U.S. President Donald Trump's tariffs is the first major shock since the pandemic, said Masahiro Koide, joint head of the capital markets division at Mizuho Securities.
Issuers are testing how much extra they need to pay to attract investors, with average spreads climbing for a third month. They're up from 54 basis points in March, according to the data which includes financial issuance.
The widening premiums are more pronounced on some deals. Japan Tobacco sold ¥50 billion of five-year notes at a spread of 38 basis points earlier this month, while similarly rated Sony paid a premium of 24 basis points on that tenor in late February.
Suntory initially halted its hybrid bond offering because some investors were demanding over 20 basis points more than what it could agree to pay, Yukihiro Iriyama, senior general manager at the finance department at the firm's corporate management and finance division, said in an interview.
Japanese credit investors aren't entirely risk-averse, but are focusing on liquid deals from frequent issuers such as highway companies, said Mizuho's Koide.