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Capital Markets

Japan's corporate debt offerings on track for record year

Rush to issue bonds driven by expectations of rising rates

TOKYO -- Japanese companies are offering even more bonds after setting a record last fiscal year, rushing to lock in ultra-low interest rates before they start creeping up.

Corporate bond issuances in Japan this year are on pace to top fiscal 2016's total of more than 11 trillion yen ($98.4 billion). Bond offerings in June jumped roughly 40% on the year to 1.4 trillion yen. In July, the cumulative value of issuances with terms that had been fixed by Wednesday comes to 1.28 trillion yen.

This month so far has seen construction machinery maker Komatsu decide to offer 50 billion yen in straight bonds, its first bond offering in three years. Mitsui Chemicals, meanwhile, is set to float bonds for the first time in four years.

Since the Bank of Japan introduced its negative interest rate policy, Japanese businesses have actively tapped the corporate bond market to raise funds at near 0% interest. For instance, motor maker Nidec, homebuilder Daiwa House Industry and other companies offered three-year bonds at a record-low level of 0.0003% between last year and earlier this year.

But expectations that the U.S. Federal Reserve and the European Central Bank will start tapering their monetary easing measures have exerted upward pressure on interest rates around the globe. This has made it highly difficult for Japanese companies to offer bonds at near 0% interest.

We are "issuing bonds while interest rates are still low, as there are growing expectations that interest rates will be going higher in the future," an official at DCM Holdings said. Japan's No. 1 home center operator is set to float its first-ever cooperate bonds as early as this week. It hopes to raise 10 billion yen and use the funds to pay down long-term debt and invest in equipment and facilities.

Information technology company NEC has issued 100 billion yen in corporate bonds. "Considering our funding needs for the next year and beyond, we wanted to raise funds while it is easy," Chief Financial Officer Isamu Kawashima said.

Demand for corporate bonds remains quite strong, as "investors, including small and midsize financial institutions, are increasing their investment in domestic corporate bonds in search of yields," said Toshihiro Uomoto, chief credit strategist at Nomura Securities.

This appetite has allowed companies with relatively low credit ratings to issue corporate bonds. Meidensha is gearing up to offer its first corporate bonds in 24 years on Thursday. The five-year debt instrument from the mid-tier electrical machinery maker has received a BBB+ rating from Japan Credit Rating Agency. The bonds will carry a coupon rate of 0.38%, as opposed to around minus 0.05% for five-year Japanese government bonds.

Naturally, market players expect high levels of corporate bond issuance to continue for some time. That surge will likely be further fueled by the fact that many Japanese companies that issued long-term bonds before the 2008 global financial crisis face redemption of those debts this year.

(Nikkei)

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