Japan Inc. takes global credit by storm with record sales
A string of recent megadeals is setting the tone. A giant sale by telecom giant NTT has already driven Japanese nonfinancial corporate issuance in euros and dollars to a record this year, based on data compiled by Bloomberg. One Morgan Stanley banker in London has even come up with a nickname for such bonds: reverse Samurai.
Japanese companies are heading overseas to borrow as their local market is becoming too volatile and rates are rising. They are finding there is buoyant demand for credit among dollar and euro investors in much deeper and more stable pools of capital.
"We see a decent pipeline for the year ahead,' said Matteo Benedetto, EMEA co-head of investment-grade syndicate at Morgan Stanley, one of the lead banks on NTT's and Nissan Motor's sales. "While strategic projects take time, we could potentially see a growing trend of Japanese borrowers tapping the international market.'
The latest trio of Japanese sales, comprising NTT, Nissan and technology group SoftBank Group, totaled more than $26 billion and drew over $128 billion in orders. NTT's deal was the second biggest of the year in the entire U.S. market. Chipmaker Kioxia sold dollar notes on Wednesday in its debut bond issuance, having upsized the deal to $2.2 billion.
Behind all this is a historic shift: Japan's bond market — a vast and formerly tranquil pool of capital — is becoming unpredictable for companies looking to raise funding. Government yields, previously kept in check by the Bank of Japan, are jumping as traders are concerned about government spending ahead of a July 20 election.
For example, a seven-year, single-A corporate bond denominated in yen would be expected to pay about 1.6%, according to BVAL pricing. That's double the amount recorded about 18 months ago and far above the near-zero levels back in 2021.
And with higher government bond rates, the extra yield on corporate bonds is no longer the only way to earn positive returns for yen-based investors. This has the potential to dampen demand for new credit issuance in the Japanese currency.
Meanwhile Japanese firms, excluding financial institutions, have ¥13.2 trillion ($89 billion) of bonds coming due by the end of 2026, which along with acquisitions could drive the need for debt issuance, according to Sharon Chen, a credit analyst at Bloomberg Intelligence.
"Utilities, transportation and telecom companies have large refinancing needs and might be more likely to tap the dollar bond market to raise long-term funding,' she said. "The dollar and euro markets' depth and longer tenors could make them more attractive than the domestic market.'
By contrast to the Japanese market, borrowing costs for high-grade credit in both U.S. dollar and euros have either remained stable or fallen in the past couple of years, based on data compiled by Bloomberg.
And investors in the U.S. and Europe are flush with cash from relentless investor inflows and ready to put money to work. NTT's multitranche issue raised $17.7 billion — a record for an Asian corporate — after drawing orders of more than $100 billion.
"There are companies that want to fund and are being a little bit opportunistic, but they wouldn't be able to do it if there wasn't demand,' said Andreas Michalitsianos, portfolio manager at JPMorgan Asset Management. "That's the thing about supply. It only comes when there's demand and syndicate desks are very good at that.'
To be sure, no offering will be guaranteed success. There's the chance of investor fatigue after a flood of recent borrowing. And there are plenty of risks from unpredictable U.S. trade policy.
Still, global investors have a lot of capacity to add exposure to Japan. The country's borrowers account for only about 2% of the dollar high-grade index and 1.6% of the euro benchmark. It's a similar picture in junk bond trackers.
This opportunity to buy little-seen names was among the selling points of bankers when placing the NTT issue. It could be their pitch for potential future deals as well.
"There is so much interest right now for U.S. dollar and euro credit, especially in the context of diversification opportunities,' said Morgan Stanley's Benedetto. NTT "was a must buy.'
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