Bloomberg News

Japanese Borrowers Market Dollar Bonds as Swaps Reduce Costs

July 09, 2012

Takeda Pharmaceutical Co. (4502) and Mitsubishi Corp. (8058) are marketing U.S. dollar bonds as swap rates reduce the Japanese companies’ funding costs.

Takeda, a drug manufacturer based in Osaka, is offering three-year bonds yielding about 75 basis points more than similar-maturity Treasuries and five-year notes paying a spread of about 105 basis points, according to a person familiar with the matter, who asked not to be identified because the details are private. Mitsubishi plans to sell five-year bonds with a yield premium of 135 basis points to 140 basis points, another person said.

Issuers from the world’s third-largest economy have sold $18.8 billion of U.S. currency bonds this year, 13 percent more than in the same period last year, as the advantage gained by issuers when swapping proceeds back to yen increased. Perceptions of Japanese corporate creditworthiness, as measured by the Markit iTraxx Japan index tracking the cost of bond insurance, reached a two-month high on July 4, according to data provider CMA.

Takeda “wants to diversify its funding sources into countries and currencies where it operates,” said Machiko Amano, an analyst at Standard & Poor’s, by phone from Tokyo.

Takeda got 31 percent of its revenue from North America in the year to March 31, according to data compiled by Bloomberg.

The five-year basis swap, a gauge of the discount investors receive for switching U.S. dollars into the Japanese currency, averaged minus 77.5 basis points this year from minus 48.1 basis points in the same period of 2011, according to data compiled by Bloomberg.

Credit-Default Swaps

The more negative the number, the more attractive it is for Japanese borrowers to sell dollar debt and swap the proceeds into yen.

The Markit iTraxx Japan index of credit-default swaps on 50 of the nation’s biggest companies, including Mitsubishi, fell as low as 168.5 basis points on July 4 and has dropped from 186.8 at the end of last year, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley and Nomura Holdings Inc. are arranging Takeda’s sale, the person familiar with the offering said. Citigroup, JPMorgan and Morgan Stanley are also managing Mitsubishi’s offering.

Mizuho Financial Group Inc. (8411) has hired Bank of America, Goldman Sachs Group Inc., JPMorgan and itself to arrange investor meetings about a possible 10-year subordinated dollar bond, a separate person with knowledge of the matter said today.

To contact the reporter on this story: Rachel Evans in Hong Kong at revans43@bloomberg.net

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


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