Japan credit investors seek shield from M&A risks as deals boom
Investors in Japanese corporate bonds are increasingly seeking protection against possible credit deterioration when an issuer becomes a takeover target.
Change of Control covenants — which give bondholders certain rights to redeem the debt before maturity if the borrower has a significant change in ownership structure — have until now been very rarely seen in the ¥100 trillion ($680 billion) Japanese credit market. Yet many investors argue that needs to change, with the risks highlighted by future ownership uncertainty of frequent issuers such as convenience store giant Seven & I Holdings and Nissan Motor.
"We need a Change of Control covenant on bonds broadly regardless of their credit ratings,' said Hiroyuki Miyata, a credit portfolio manager at Nissay Asset Management. Investing in yen notes without that has become a risk, he said.
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