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Berkshire taps Japan's hunger for yields with $4bn bond debut

Tokyo investors flock to overseas blue-chip issues amid negative rates

Berkshire Hathaway chairman and CEO Warren Buffett enjoys an ice cream treat from Dairy Queen before a Berkshire Hathaway annual meeting in Omaha, Nebraska.   © Reuters

TOKYO/NEW YORK -- Warren Buffett's Berkshire Hathaway headlined a record day in Japan's bond market Friday by setting the terms on a 430 billion yen ($4 billion) offering, the biggest yen-denominated issue ever by a foreign multinational.

The U.S. investment group is selling five-, seven-, 10-, 15-, 20- and 30-year bonds.

The biggest chunk, 146.5 billion yen in 10-year debt, carries a 0.44% coupon -- an attractive yield at a time when Japan's benchmark long-term interest rate languishes below zero.

Banks, insurers, asset managers and other investors flocked to Berkshire's offering, which falls under a global yen bond heading that allows foreign buyers to participate. Debt offerings under this framework have been growing gradually, with such big names as Apple, Starbucks, and Procter & Gamble joining in, and both Wall Street and Japanese financial institutions are pitching bond floats.

The success of the record debt sale could embolden other multinationals to raise capital in Japan's bond market, where most yen-denominated offerings by foreign issuers have been small.

Berkshire's AA issuer rating from S&P Global Ratings puts it slightly above the AA- of Japanese blue chip Toyota Motor.

The offering helps address a longstanding issue with Japan's debt market: a narrow lineup of issuers. Only about 400 Japanese companies have floated bonds, according to Daiwa Securities -- a fraction of the more than 2,000 listed on the first section of the Tokyo Stock Exchange. And just a handful of these, such as SoftBank Group, regularly carry out big offerings.

This is a problem for investors -- particularly institutions with large sums of money to manage -- that want to buy bonds but would prefer to avoid putting too many eggs in too few baskets. The Berkshire float gives them an opportunity to diversify into highly rated debt.

On top of Berkshire's offering, Japanese companies issued a one-day record of 1.2 trillion yen in bonds on Friday alone. SoftBank Group, Nippon Steel and developer Mitsui Fudosan were among those participating in the bonanza, which featured diverse offerings including subordinated debt aimed at retail investors as well as green bonds.

"The market didn't have any trouble digesting them -- if anything, they were gone as soon as they were issued," a bond dealer said.

This was just the most active day in a longer debt market boom. Long-term interest rates have been mired in negative territory for half a year, with monetary easing abroad exacerbating the problem. The benchmark yield on 10-year Japanese government bonds stood at minus 0.245% on Friday, nearing the record low of minus 0.3% set in July 2016.

This is driving individual and institutional investors alike to seek out yield elsewhere, while businesses seize the opportunity to borrow for cheap.

Japan still has many investors that steer clear of the slightest whiff of default risk. But this is starting to change amid the current unprecedented yield drought. The Government Pension Investment Fund's move last year to relax its investing standards to allow for purchases of high-yield debt has also encouraged the public to do the same.

Businesses are also leveraging growing interest in environmental, social and governance investing. Japanese issuance of green bonds surged 140% to 530 billion yen in 2018, and nearly 300 billion yen have been floated so far this year.

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