Takeda's Shire Ambitions Show Just How Easy Money Is in Japan

(Bloomberg) -- Takeda Pharmaceutical Co.’s ability to even consider spending as much as $50 billion to buy a rival like Shire Plc is a reflection of just how cheap it is to borrow money in Japan these days.

The Japanese drugmaker confirmed it’s weighing an approach for Shire, which would be its biggest takeover ever and vault Takeda into the ranks of the world’s biggest pharmaceutical companies. The deal “looks stretched” financially, Bernstein analyst Wimal Kapadia said in a note. But that doesn’t mean Takeda won’t be able to pull it off.

That’s in part because investment grade companies like Takeda typically pay an annual yield of just 0.34 percent when they raise money in Japan, Bloomberg Barclays index data show. That’s less than half of the average rate since 2007, when the data was first tracked, and far below what companies pay in other markets. Blue-chip companies in the U.S. typically borrow at a rate of 3.8 percent, while borrowers pay around 0.89 percent in Europe, the data show.

Takeda's Shire Ambitions Show Just How Easy Money Is in Japan

These buoyant conditions for Japanese borrowers have led companies there to take on new debt. Issuance reached around 9.2 trillion yen ($86.5 billion) in the April-to-December period last year -- the most on record, according to data compiled by Bloomberg.

Takeda has also added to its debt load in recent years: It has more than quintupled since 2014 to 1.2 trillion yen ($11.3 billion) after doing a series of deals. The drugmaker agreed to acquire TiGenix NV, a Belgian maker of stem-cell therapies, for 520 million euros ($642 million) in January, following last year’s around $4.66 billion purchase of U.S. biotech company Ariad Pharmaceuticals Inc.

Takeda CEO Christophe Weber has said one of the company’s priorities is to stay investment grade and have a strong financial position. But the added debt has weighed on its credit rating. Standard & Poor’s cut Takeda’s credit rating due to the borrowing for the Ariad deal, saying it would cause the drugmaker’s financial ratios to “worsen substantially.” Moody’s changed Takeda’s outlook to negative early last year, also citing the Ariad deal.

To contact Bloomberg News staff for this story: Molly Smith in New York at msmith604@bloomberg.net, Lisa Du in Tokyo at ldu31@bloomberg.net, Li Hui in Beijing at hli355@bloomberg.net.

©2018 Bloomberg L.P.

With assistance from Molly Smith, Lisa Du, Li Hui