Japanese Firms Dive Into Asia's Deepening Pool of Dollars

(Bloomberg) -- Asia’s growing pool of dollar funds is catching the eye of traditionally conservative Japanese issuers, who in the past focused on selling debt in the U.S. when they went offshore for funding.

Japanese borrowers have churned out $17.6 billion in dollar debt targeted to Asian and European buyers -- the bulk of which market players say has gone to Asia. That’s a record high, and already more than 60 percent greater than such sales for all of last year, according to data compiled by Bloomberg.

Behind the surge is a recognition of the benefits that Japanese issuers can get from a relatively new investor base closer to home. The rapidly expanding Asian dollar-bond market is being propelled by China, which makes up more than half of both sales and purchases. It’s even drawing Latin American issuers to the region -- read more about that here.

“Increasingly this year one of the reasons for Japanese issuers to tap the dollar bond market is to reach out to Asian and China-based money,” said Akihiro Igarashi, an executive director at Nomura Securities Co.’s syndication department in Tokyo. “The region’s abundant liquidity helps them achieve good pricing.”

The strong demand from Asia is helping Japanese pull off issuance sizes that were unthinkable in the past without participation from U.S. investors. The volume of Japanese dollar bonds that are sold under U.S. issuance rules has dropped about 18 percent so far this year compared with 2016.

Komatsu Finance, for example, bagged a total of $800 million from Asian and European investors in early September, bigger than the usual size for such a sale in the past, says John Wade, head of debt capital markets for Asia ex-Japan at Mizuho Securities Asia.

Bigger Deals

The size of the typical Japanese bond sale to Asians and Europeans used to be no more than $750 million, but that amount has climbed because “Asia has more dollars than in the past and investors are looking to put that money to work,” said Wade.

Japanese issuers don’t come to the international debt market often due to the deep yen bond market, but like many global borrowers they are now tapping Asian investors more when they need dollar funding, according to Augusto King, head of capital markets group for Asia at MUFG Securities.

For Asian investors, it offers a diversification play, given Japan’s very different economic status from the rest of the region, as one of the world’s most developed nations.

“They could provide Asia-based investors a different kind of exposure during portfolio construction,” says Roy Kwok, a partner and senior portfolio manager at DeepBlue Global Investment in Hong Kong. “As both issuers and investors get more accustomed to each other, we hope to see more different types of players -- not just banks and conglomerates -- who can provide higher returns and risk diversification for us.”

--With assistance from William Hau

To contact the reporters on this story: Narae Kim in Hong Kong at nkim132@bloomberg.net, Denise Wee in Hong Kong at dwee10@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Andrew Monahan at amonahan@bloomberg.net.

©2017 Bloomberg L.P.