Japan Boosts M&A War Chest With Record Bond Sales Abroad

(Bloomberg) -- Record international bond sales are helping Japanese borrowers bolster their firepower for overseas operations and acquisitions.

Companies and government entities issued an unprecedented $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 in January are also off to their strongest start in seven years, according to data compiled by Bloomberg.

“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 M&A slowed last year, any further gains in the yen could burnish the appeal of international dealmaking. Corporate Japan is also locking in some of the lowest borrowing costs in foreign currencies in over a decade, ahead of expected central bank rate increases. The extra yield on corporate debt in the U.S. over Treasuries has slid to an 11-year low of 87 basis points, according to a Bloomberg Barclays index.

For now, market conditions will likely remain favorable for Japanese companies looking to sell dollar notes, according to Mana Nakazora, chief credit analyst in Tokyo at BNP Paribas SA.

Read more about M&A demand driving Japan corporate foreign note issuance

The lack of further strength in U.S. economic growth means that it will be “difficult” for yields on 10-year Treasuries to rise to 3 percent from the current levels of around 2.7 percent, she said. Investors will likely keep buying other investments offering higher returns, including corporate bonds, and that should hold down issuance costs for companies, she said.

Foreign debt sales by Japanese firms will likely increase this year, according to 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 U.S. interest rates begin to rise, said Ryota Suzuki, managing director at Bank of America Merrill Lynch.

Japanese companies that haven’t 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 companies, according to Bloomberg-compiled data.

To contact the reporters on this story: Takashi Nakamichi in Tokyo at tnakamichi1@bloomberg.net, Tesun Oh in Tokyo at toh15@bloomberg.net.

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Timothy Sifert

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