Mitsui Fudosan $3.2 Billion Olympic Bet Cuts Risk

Mitsui Fudosan Co. (8801)’s bond risk plunged after Japan’s biggest real estate developer said it plans to raise as much as 324.6 billion yen ($3.2 billion) in a share sale to boost investments before the 2020 Tokyo Olympics.

The cost to insure the company’s bonds against nonpayment slid 3 basis points to 34 basis points on May 27, the sharpest one-day drop since Dec. 11, according to data provide CMA. The Markit iTraxx Japan credit-default swap index fell 1 to 80 that day, while the gauge for North American companies declined less than 1 basis point, or 0.01 percentage point.

Mitsui Fudosan is readying funds with its first share sale in 32 years as the International Olympic Committee forecasts the games will attract 152 billion yen in investment into Tokyo’s properties. The company said the real estate environment in the country has changed “dramatically” since December 2012, when Prime Minister Shinzo Abe came to power pledging an end to 15 years of deflation.

“Mitsui Fudosan has many development projects and investment opportunities will increase as Tokyo prepares for the Olympic Games and creation of strategic zones,” said Roko Izawa, a Tokyo-based analyst at Standard & Poor’s. “Equity financing is a positive factor from the credit perspective.”

Source: Tokyo 2020 Bid Committee via Bloomberg

The Olympic Village/Paralympic Village in Tokyo, Japan, is seen in this computer generated handout image, provided to the media on Wednesday, April 3, 2013. Close

The Olympic Village/Paralympic Village in Tokyo, Japan, is seen in this computer... Read More

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Source: Tokyo 2020 Bid Committee via Bloomberg

The Olympic Village/Paralympic Village in Tokyo, Japan, is seen in this computer generated handout image, provided to the media on Wednesday, April 3, 2013.

Japan’s government is considering creating test zones that will offer lower corporate taxes and looser building restrictions. Abe on March 28 announced a plan to make the region around Tokyo one of such areas to lure investment.

Olympic Effect

Mitsui Fudosan, together with Kajima Corp., Mitsubishi Estate Co. and two other Japanese companies, plan to spend about 67.5 billion yen to build Japan’s biggest apartment tower near the Olympic venues. The economic effect from the games would be approximately 3 trillion yen for the nation, according to the Tokyo 2020 Bid Committee’s website.

Yoshinobu Koriyama, a spokesman at Mitsui Fudosan, declined to comment on the bond risk moves because the company is in a fundraising period.

“We can expect Japan’s growth going forward,” Mitsutoshi Tenda, another company spokesman, said in Tokyo on May 27. “There will be business opportunities for us to pursue actively.”

The developer said on May 27 it will sell as many as 110 million shares and use the proceeds for real estate development opportunities offered by the Olympics. It will price the stock as early as June 16. The company’s share price has climbed 1.5 percent since May 27 to 3,390 yen as of 9:38 a.m. in Tokyo today.

Cheap Bonds

“Some questions will be asked on the breadth of sectors they want to invest in and why they didn’t use cheap debt as finance,” said Tim Gibson, the head of Asia property equities at Henderson Global Investors Ltd., who helps manage about $130 billion.

The Bank of Japan’s monthly purchases of about 7 trillion yen in sovereign debt has helped lower borrowing costs for the nation’s companies. Investors demand a 23 basis-point yield premium over government notes to own Japanese corporate bonds, the least since August 2007, according to Bank of America Merrill Lynch data. That compares with a 12.5 basis-point spread on Mitsui Fudosan’s 1.719 percent securities due June 2019.

Japan’s benchmark 10-year bond yield has dropped 15 1/2 basis points, or 0.155 percentage point, to 0.58 percent this year. The yen traded at 102.38 against the dollar.

Mitsui Fudosan has 300 billion yen of outstanding bonds, including 30 billion yen maturing this year, Bloomberg compiled data show. It last sold debt in July, raising 10 billion yen via 20-year notes at a 31 basis-point spread.

Office Rents

Tokyo’s office vacancy rate, a measure of unoccupied space, fell to 6.6 percent in April, the lowest since March 2009 and down from 8.5 percent a year earlier, according to Miki Shoji Co., a closely held office brokerage company. Average office rents gained for four straight months in April, the longest growth spurt since the period to June 2008, it said.

Mitsui Fudosan last month reiterated its forecast for operating profit to climb to a record 240 billion yen in the year ending March 2018, from 183 billion yen in the current fiscal period. The developer, whose projects include the Tokyo Midtown retail and office complex, was founded in the 17th century as a clothing store.

“Japan’s economy has much improved after the new government took over more than a year ago and it is having a positive effect on the real estate market,” said Kayoko Hirao, head of Japan research at broker DTZ. “Mitsui Fudosan needs capital to realize development plans and the timing is good.”

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net; Brian Fowler at bfowler4@bloomberg.net Pavel Alpeyev, Ken McCallum

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