Idemitsu Kosan Co. (5019), Japan’s third biggest refiner, plans to sell about 100 billion yen ($1.27 billion) of bonds in three to five years as it considers a $5.8 billion investment in a refinery in Vietnam.
Idemitsu, based in Tokyo, sold 20 billion yen of notes split between 1.01 percent seven-year securities and 0.62 percent five-year debt, its first offering ever, according to data compiled by Bloomberg. That compares with the average 0.78 percent Japanese companies pay to sell bonds, Bank of America Merrill Lynch index data show.
“The bond spreads were set at a satisfactory level as they are lower than our loan rates,” Masaharu Taniguchi, a manager at Idemitsu’s treasury department said in a Sept. 13 interview in Tokyo. The company plans to use the funds to repay bank loans and increase the ratio of direct financing to about 20 percent in three to five years, Taniguchi said.
Idemitsu is tapping lower borrowing costs to help fund overseas investments at the time when Japan’s shrinking population and a shift toward greener energy have reduced demand at home. The company is in the final stage of talks with its partners on construction of the 200,000 barrels-a-day Vietnamese refinery and plans to make the final decision by the end of this year, said Taniguchi.
“The business environment remains tough as domestic demand for petroleum products continues to decline,” Japan Credit Rating Agency Ltd. said in a Sept. 11 report. “The company is aiming at earnings growth by expanding production in the resource businesses such as oil exploration and production and coal, while maintaining a competitive edge in the petroleum operations by working on reducing domestic refining capacity.”
Idemitsu reduced its interest-bearing debt by 18.5 billion yen to 901.3 billion yen in the quarter ended June 30, it said in an Aug. 14 filing. The refiner cut on Aug. 7 its full-year net income forecast 65 percent to 19.5 billion yen citing an inventory-valuation loss.
“Despite a temporary drop in the margins in the petroleum operations due to wild ups and downs in crude oil prices, steady earnings can be expected over the medium term,” JCR said in the report. The ratings company maintained its A- ranking on Idemitsu’s debt, its forth-lowest investment grade.
Idemitsu and its partners have delayed deciding whether to build the Nghi Son plant, south of Hanoi, at least three times as they continue to resolve issues including how to finance the project. The final decision was originally scheduled for 2010 while commercial operations were expected to start in December 2013.
Idemitsu and Kuwait Petroleum International Ltd. each have a 35.1 percent stake in the Nghi Son project, while Vietnam Oil & Gas Group holds 25.1 percent. Mitsui Chemicals Inc. (4183) has 4.7 percent.