Record international bond sales are helping Japanese borrowers bolster their firepower for overseas operations and acquisitions.
Companies and government entities issued an unprecedented US$86.7 billion of foreign-currency notes last year, up 21.4 percent from 2016, as firms including Softbank Group Corp and Asahi Group Holdings Ltd tapped debt financing to expand overseas.
Sales this month are also off to their strongest start in seven years, data compiled by Bloomberg showed.
“Overseas bond issuance means that Japanese companies have an extra financing tool to use when implementing growth strategies, including mergers and acquisitions,” said Masaya Mizobuchi, head of global debt capital markets at Mizuho Securities Co. “It may also help Japanese issuers gain more recognition overseas.”
While Japanese overseas mergers and acquisitions slowed last year, any further gains in the yen could burnish the appeal of international deals.
Corporate Japan is also locking in some of the lowest borrowing costs in foreign currencies in more than a decade, ahead of expected central bank interest rate increases.
The extra yield on corporate debt in the US over Treasuries has slid to an 11-year low of 87 basis points, according to the Bloomberg Barclays index.
For now, market conditions are likely to remain favorable for Japanese companies looking to sell US dollar notes, said Mana Nakazora, chief credit analyst in Tokyo at BNP Paribas SA.
The lack of further strength in US economic growth means that it would be “difficult” for yields on 10-year Treasuries to rise to 3 percent from the current levels of about 2.7 percent, she said.
Investors would likely keep buying other investments offering higher returns, including corporate bonds, and that should hold down issuance costs for companies, she added.
Foreign debt sales by Japanese firms are likely to increase this year, said Minoru Shinohara, global head of investment banking at Nomura Holdings Inc.
“Japanese companies have been expanding their overseas operations — they have a very strong demand for foreign currencies,” he said.
They appear to have a “strong view” that they should issue bonds before long-term US interest rates begin to rise, said Ryota Suzuki, managing director at Bank of America Merrill Lynch in Tokyo.
Japanese companies that have not issued foreign currency notes for a while or have never done so have started to indicate more interest as they watch other firms successfully sell debt abroad, according to Masanori Kato, head of debt capital markets in Tokyo at JPMorgan Securities Japan Co.
JPMorgan was the top underwriter last year of foreign bonds sold by Japanese firms, according to Bloomberg-compiled data.
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