Bloomberg News

Kirin Leads Bond Sale Revival as Yield Cuts Costs: Japan Credit

September 11, 2011

Sept. 12 (Bloomberg) -- Japanese companies led by Kirin Holdings Co. and Dainippon Screen Manufacturing Co. are accelerating the pace of debt sales as the nation’s borrowing costs dip to a four-month low.

Borrowers offered 573 billion yen ($7.4 billion) in the seven days through Sept. 11, the busiest week since the period ended March 6, based on data compiled by Bloomberg. Corporate bonds yielded 1.13 percent on Sept. 6, matching the lowest level since May 16, according to Nomura Securities Co.’s Bond Performance Index. Comparable yields in the U.S. were about 3.65 percent, Bank of America Merrill Lynch index shows.

Global demand for bonds is increasing as the global economy slows and the European debt crisis worsens. The Bank of Japan kept its key interest rate near zero on Sept. 7 as it tries to stoke growth and combat deflation that’s gripped the nation for more than a decade.

With interest rates so low, “companies would want to raise long-term funding,” said Yasunobu Katsuki, chief credit analyst at Mizuho Securities Co., the top underwriter of the nation’s corporate bonds this year. “Money is sitting in financial institutions, so, whether it’s Japanese government or corporate bonds, the appetite for fixed-income investment is substantial.”

Japan’s banks, which hold half of the nation’s corporate bonds, are helping push yields lower after bank deposits exceeded loans by 163.3 trillion yen last month, according to the latest data compiled by the Bank of Japan. That followed a record 166.7 trillion yen in June, raising pressure on lenders to find places to invest the cash.

Benchmark Yields

The yield on the nation’s benchmark 10-year bond dropped 1 basis point to 0.99 percent today in Tokyo after touching 0.97 percent on Aug. 19, lowest since November, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. Ten-year Treasury yields slid to a record 1.89 percent on Sept. 9.

Kirin, Japan’s largest brewer by market value, plans to sell at least 70 billion yen this week, according to a person with direct knowledge of the matter. The brewer told investors it will price at least 30 billion yen of five-year bonds to yield from 13 basis points to 18 basis points more than the similar-maturity government debt, and at least 40 billion yen of 10-year bonds at a spread of between 19 and 27, said the person, asking not to be identified as the information is private.

Bridge Loan

The Tokyo-based company, which is buying a majority stake in Brazil’s Schincariol Participacoes e Representacoes SA, agreed on a 180 billion yen bridge loan to help fund the acquisition, Chief Financial Officer Yoshiharu Furumoto said in an interview on Aug. 5. Kirin will decide this fall whether to refinance the bridge loan with another bank loan and a bond sale likely covering most of the amount, Furumoto said.

The bond sale will be Kirin’s first since October 2009 when it raised 100 billion yen. The issue at the time included 50 billion yen of 10-year 1.639 percent bonds priced at a spread of 24 basis points, according to data compiled by Bloomberg.

Dainippon Screen Manufacturing, rated BBB by Japan Credit Rating Agency, is planning to sell about 15 billion yen in bonds this week, including about 10 billion yen of three-year notes at a spread of 50 to 70 basis points more than the yen swap rate, and about 5 billion yen of five-year bonds at a spread of 80 to 100, according to a person with direct knowledge of the matter.

The offering would be its first since January 2009, Bloomberg data show.

Honda Sells

Honda Finance Co., a unit of Japan’s third-largest automaker, sold 40 billion yen of 0.465 percent bonds last week priced at a spread of 10 basis points, Bloomberg data show. The coupon is the lowest of any notes it has offered domestically.

Japan’s corporate bonds excluding electric companies and banks returned 0.258 percent in August, the fifth straight monthly gain, according to Bank of America Merrill Lynch’s Japan Industrial Index.

Yields on the bonds declined to 0.583 percent on Sept. 6, the lowest since Nov. 4, from 0.827 percent on Feb. 16, the highest this year, the index data show. That compares with 3.403 percent for the counterpart in the U.S. at the time, with the gap between the two narrowing to 2.82 percentage points from this year’s widest level of 3.48 percentage points on Jan. 5.

Japanese companies have sold 5.93 trillion yen of bonds this year, down 11 percent from the same period a year earlier, according to Bloomberg data. Nuclear plant operators have 12.3 trillion yen of total bonds outstanding and have offered no debt since the March 11 quake and ensuing tsunami that triggered a nuclear crisis.

‘No Glut’

“Companies that needed to sell bonds have mostly done so by now,” Katsuki said. “There is no supply glut yet.”

The yen gained versus all 16 major counterparts over the past three months and traded at 77.52 per dollar in Tokyo. The yen climbed to a post-World War II record of 75.95 per dollar on Aug. 19, threatening to derail Japan’s export-led recovery.

The Markit iTraxx Japan index of credit-default swaps rose 9 basis points to 161 as of 9:27 a.m. in Tokyo, Deutsche Bank AG prices show. The risk benchmark is on course its highest since May 25 last year, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The index climbed from 98 the day before the earthquake.

Contracts to insure Japanese government debt against default for five years rose 4 basis points to 114, Deutsche Bank prices show. That’s headed for its highest since March 16, CMA prices in New York show.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite. The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

Strong demand for corporate bonds will end when the gap between bank deposits and loans decreases substantially, yields on government debt rise, or utilities resume bond sales, said Nobuto Yamazaki, an executive fund manager at DIAM Asset Management Co. in Tokyo.

“None of these is likely to happen soon,” Yamazaki said. “We’ll be seeing tight spreads for the time being.”

--With assistance from Monami Yui in Tokyo and Sarah McDonald in Sydney. Editors: Pavel Alpeyev, Patrick Chu

To contact the reporter on this story: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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