Bloomberg News

CFOs Lock In Abe Rates as Orix Plans Longer Debt

January 21, 2013

Orix Corp. CFO Haruyuki Urata

Haruyuki Urata, chief financial officer of Orix Corp., seen here in this Sept. 14, 2010 photo, said longer-dated bonds are important for Tokyo-based Orix to fund energy and environment-related business. Photographer: Akio Kon/Bloomberg

Orix Corp. (8591), Japan’s biggest non-bank issuer of corporate debt, plans to lock in lower borrowing costs under Prime Minister Shinzo Abe by selling longer-dated bonds.

“The fundraising environment is favorable, and we want to issue bonds with a maturity of at least seven years,” Chief Financial Officer Haruyuki Urata said in an interview. The finance and leasing company plans to sell less than 50 billion yen ($560 million) of such notes in the year starting April 1.

Fujifilm Holdings Corp. (4901) and TonenGeneral Sekiyu K.K. have also sold longer-dated debt after Abe called for unlimited cash provisions by the Bank of Japan, which eased monetary policy today. The yield on corporate bonds maturing in five to seven years fell 12 basis points from a seven-month high reached Nov. 14 and touched 0.75 percent yesterday, less than the 1.18 percent average in the past decade, according to Bank of America Merrill Lynch data. Similar U.S. corporate debt yielded 2.4 percent yesterday.

Companies have been extending the duration of their debt since mid-November, as Abe began an election campaign by pledging to spur the economy and end deflation with fiscal and monetary stimulus. The weighted-average maturity for notes sold in the past two months is 6.5 years, versus 5.8 years in the previous two months, according to data compiled by Bloomberg.

“It’s been getting much easier for corporates to sell bonds since November,” said Yusuke Ueda, a credit analyst at Bank of America’s Merrill Lynch unit in Tokyo. “It’s hard to predict whether financial firms will be as strong in three or five years so Orix is taking the opportunity to raise funds with longer-maturity bonds now.”

Going Long

Longer-dated bonds are important for Tokyo-based Orix to fund energy and environment-related business, Urata, 58, said in the Jan. 16 interview, adding that he wants to diversify the duration to better manage risks.

Orix, which owns a professional baseball team called the Buffaloes, has 1.4 trillion yen of notes outstanding, with a weighted-average maturity of 2.5 years and an average coupon of 1.9 percent, according to data compiled by Bloomberg. About 605 billion yen of those bonds are set to mature by 2014. The company most recently issued seven-year debt in August, paying a coupon of 1.146 percent on the 10 billion yen note.

Orix’s credit has improved from the depths of the global financial crisis in 2009, when its reliance on short-term debt sent the cost of insuring its bonds against default to a record. Credit-default swaps swelled to 2,822 basis points in March 2009 amid investor concerns about the company’s short-term borrowings, which totaled 1.28 trillion yen when Lehman Brothers Holdings Inc. collapsed in September 2008.

Default Risk

Since then, Orix has reduced its short-term debt to 356 billion yen as of Sept. 30, according to the company’s latest financial statements. The cost to insure Orix debt against nonpayment fell 44 basis points since Nov. 14 to 120 yesterday and reached 111 earlier this month, the lowest in more than four years, according to data provider CMA.

“I expect CDSs for Orix to tighten over the next year,” Bank of America’s Ueda said. “With Abe’s efforts to mitigate default risks and encourage monetary easing, appetite for corporate bonds could grow.”

Elsewhere in Japan’s credit markets, KT Corp. narrowed the extra yield it proposed for Samurai bonds it’s selling tomorrow, according to a person familiar with the matter. The offering by the South Korean telecommunications company will include five- year notes priced at a spread of 53 to 57 basis points more than the yen swap rate, said the person, who declined to be identified because the information is private.

Bond Return

Samurais, which are yen securities sold in Japan by overseas borrowers, have returned 0.22 percent so far this year, according to Bank of America Merrill Lynch index data. That compares with a 0.25 percent gain in Japanese corporate bonds during the period, and the 0.04 percent loss in company notes worldwide, according to the data.

The Markit iTraxx Japan index of credit-default swaps for 50 companies fell to 138 basis points on Jan. 18, the lowest since March, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. A decrease in the contracts signals improving perceptions of creditworthiness, while an increase suggests the opposite.

BOJ Decision

The BOJ shifted to Federal Reserve-style open-ended asset purchases and doubled its inflation target to 2 percent, according to a statement today from Tokyo after the central bank board’s meeting.

Yields on Japan’s 10-year government bonds were little changed at 0.74 percent as of 1:16 p.m. in Tokyo after the BOJ decision. The rate was 111 basis points less than on similar maturity U.S. Treasuries, compared with 104 basis points a year earlier. Ten-year yields will climb to 1 percent by year-end, according to a Bloomberg survey of banks and securities firms with the most recent forecasts given the heaviest weightings.

The yen rose 0.1 percent to 89.52 per dollar at 1:16 p.m. in Tokyo, after yesterday touching 90.25, the weakest since June 2010. The Japanese currency has lost 12 percent over the past three months, the worst performance among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Fujifilm, Sotetsu

Fujifilm sold 40 billion yen of a 10-year, 0.882 percent bond as part of the copier maker’s debut issuance of non- convertible debt announced on Nov. 27. TonenGeneral Sekiyu issued 10 billion yen of 1.222 percent notes maturing in 2022 as part of its first debt sales in the same month.

Sotetsu Holdings Inc. (9003), a rail and bus transport operator, sold 16 billion yen of seven-year notes at a coupon of 0.81 percent today, according to SMBC Nikko Securities Inc. Toppan Printing Co. (7911) issued 40 billion yen of 10-year bonds at 0.932 percent, Nomura Securities Co. said.

Orix sold 225 billion yen of notes last year, the most for a Japanese company except for the three largest banks, according to data compiled by Bloomberg.

The leasing company plans to issue about 200 billion yen of bonds domestically in the year starting April, Urata said. He seeks to sell about $500 million of debt abroad in the first half and will consider issuing the same amount in the second half. The company may also sell “several billions of yen worth” of bonds in Asian currencies such as the ringgit, baht and won, he said.

“We’ll use the proceeds from dollar bond sales for operational costs for our financial business in the U.S., and for the purchase of aircraft and ships for our leasing business,” Urata said. “We also plan to allocate some of our dollar funding for mergers and acquisitions.”

Urata wants to increase debt sales to institutional investors to about half from 30 percent as demand rises.

“The market rally is a big plus for Orix’s funding environment, and now we’re going to take this big chance,” he said.

To contact the reporter on this story: Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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