Mega Bond Sale Shows Japan Is Ready for Bigger Credit Market

Nippon Telegraph & Telephone Corp. priced 1 trillion yen ($9.6 billion) of bonds Friday in the biggest-ever local debt deal by a Japanese company, a victory for borrowers and investors who have long argued that the nation’s credit market is ready to play a bigger role.

Demand for the deal was strong, as money managers leapt at yields that were higher than many recent deals. The telecom giant had earlier increased its target size from 500 billion yen on brisk investor interest. And even after that, it still received about 2.4 trillion yen of total orders, according to SMBC Nikko Securities Inc., one of the underwriters.

“The fact that the company increased the amount in stages and finally got 2.4 trillion yen in demand reflects the popularity,” said Masayuki Tsujino, a senior fund manager at Asahi Life Asset Management Co.

Mega Bond Sale Shows Japan Is Ready for Bigger Credit Market

Japan’s local credit market is still small compared with the nation’s economy, a legacy of companies’ preference for bank loans in the past. But change is afoot. Investors grappling with ultra-low rates amid the pandemic are pushing for more options to boost returns.

Deals like NTT’s may help with that, and also raise the prospect of larger underwriter fee hauls for financial institutions. There has also been progress in the country’s fledgling junk bond market, after consumer lender Aiful Corp. sold the second-ever such securities there earlier this month.

In a nation with high household savings rates, a more robust credit market could also help increase investment options. More issuance of corporate notes from listed Japanese companies may eventually help citizens’ savings shift more to corporate bonds, according to Toshiyasu Ohashi, chief credit analyst at Daiwa Securities Group Inc.

Sizzling credit markets globally have cut borrowing costs after unprecedented monetary stimulus, and in Japan yields have slid to multi-month lows. Companies around the world have sold a flurry of blockbuster bonds this year. Boeing Co. priced $25 billion of securities in the spring, while Oracle Corp. issued $20 billion and T-Mobile US Inc. sold $19 billion. That’s all added to a record $3.3 trillion of corporate bond issuance globally in 2020, up about 31% from last year.

NTT’s deal exceeds 500 billion yen debt sales from Takeda Pharmaceutical Co. and SoftBank Group Corp. in 2019 that were the previous records in the Japanese corporate note market.

The company is issuing the bonds through unit NTT Finance Corp. in four tranches. The proceeds will help fund its 4.25 trillion yen purchase of wireless carrier unit NTT Docomo Inc.

Tranche details:

  • 3-year, 100 billion yen, 0.05%
  • 5-year, 300 billion yen, 0.18%
  • 7-year, 200 billion yen, 0.28%
  • 10-year, 400 billion yen, 0.38%

The three-year portion yields more, for example, than a similar-maturity note sold recently by Meiji Holdings Co.

The main investors were Japanese institutional buyers such as life insurers, casualty insurers, banks and trust banks, according to SMBC Nikko.

“I didn’t think that we could issue such an amount from the beginning,” said Yuzo Aramaki, an NTT spokesman, adding that it was a positive surprise. Aramaki said the company is also preparing to sell the equivalent of up to around 1 trillion yen in dollar bonds.

NTT could have sold bonds at tighter spreads if the deal wasn’t so big that investors asked for extra premiums, said Noritaka Oda, managing director and head of debt syndicate at SMBC Nikko’s capital markets division. The success of this offering was important in the run-up to its planned dollar note sale, he said.

©2020 Bloomberg L.P.

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