Japanese companies have tapped bond markets for record amounts this year, taking advantage of investors’ continued demand for yield amid a wider boom in the region’s dollar debt markets.
Companies have sold $195.3bn worth of yen and dollar-denominated bonds so far this year according to Dealogic. That puts the market 10 per cent ahead of this point in 2016, and surpasses the previous year-to-date record of $187bn set in 2012.
The surge has been driven by a rise in sales of dollar-denominated bonds, which at $59.8bn are running at almost twice their level of five years ago — a trend echoed across the region’s markets.
The dollar boom has prompted a debate as to whether it marks a maturing of Asia’s international bond markets — historically far smaller and more fragmented than in Europe or the US — or simply a fad that will fade when interest rates rise definitively.
A recent sell-off in bond markets, pushing borrowing costs higher, has not yet deterred borrowers. Last week SoftBank, the telecoms to technology giant, sold $4.5bn in junk-rated perpetual bonds — a global record for such an issue.
Bankers are confident the trend can continue for at least a few more quarters, with Japanese companies’ interest in overseas acquisitions expected to continue.
“Japanese corporates in the past relied on bank loans for dollar funding, but their funding needs are getting bigger and bigger, so they now need to raise money in the market,” said Ryota Suzuki, co-head of Japan debt capital markets for Bank of America Merrill Lynch.
He added: “Japanese issuers are very active in expanding internationally and they will also have some refinancing needs. I think for at least a few more years, this trend will be continuing.”
Uncertainty around the political situation and policy in the US has also played a part, prompting investors to park unused cash in their portfolios in the bond markets to improve returns, says Shohei Takahashi, head of the syndicate team at Nomura Securities.
SoftBank accounts for two of the top 10 deals so far this year. Other big borrowers include the finance arm of Toyota, which sold $3.5bn in a four-tranche dollar deal in January. The 10-year part of the deal sold with a coupon of 3.2 per cent.
In the domestic market, Asahi Group raised Y280bn ($2.6bn) to fund the purchase of several breweries in central and eastern Europe. The 10-year part of that deal offered a coupon of 0.33 per cent.
While Japanese interest rates are far lower than those in US terms, currency swaps make the US market attractive to companies who use the derivatives to hedge their foreign exchange exposure from the deals.
Mr Takahashi also said that tighter standard of corporate governance in Japan could have pushed companies debating whether to raise funds via debt or equity, to favour the bond markets.
“So when corporates have a choice between issuing equity or debt, debt would be a much easier choice,” he said.
Asian buyers have accounted for a rising proportion of internationally sold bonds in the region — a trend that is key to any maturing and deepening of Asia’s market. Bankers hope it represents the development of a reliable pool of investment dollars for local companies to tap — thereby avoiding the higher costs of selling bonds to US and European investors.
More than half of SoftBank’s deal last week was sold to Asia-based investors
“In the international market, bond investors are looking for high yield and have higher risk appetite. They are willing to invest in the perpetual bonds based on risk/return analysis, and that is one reason why SoftBank decided to come to the international market,” Mr Suzuki said.