Housewives Lured by Tobu at 10 Times Savings Rate: Japan Credit

An undated handout illustration shows the Tokyo Sky Tree broadcasting tower in Tokyo. Source: Tobu Railway Co. via Bloomberg

Tobu Railway Co., the train operator building the world’s tallest tower, is taking advantage of investor demand for better returns to sell 10 billion yen ($121 million) of bonds at the lowest cost in six years.

The Tokyo-based company, rated BBB by Japan’s Rating and Investment, is offering bonds to individual investors as yields on similarly rated securities fall to a three-year low of 28 basis points, or 0.28 percentage point, above notes with AA grades, according to Bank of America Merrill Lynch indexes. In the U.S., the same gap is 91 basis points, the data show.

Tobu is luring individuals to the three-year notes with an interest rate of 0.6 percent, 10 times more than on deposits for three years or more at Japan Post Bank Co., the nation’s largest bank. Buyers also get the chance to win a hotel stay near the Tokyo Sky Tree, a 634-meter (2,080 feet) structure being built by a Tobu subsidiary.

“I visited Tokyo Sky Tree last year with my grandchild and have such good memories that now I’m thinking of buying Tobu’s bonds,” said Masako Bando, a 56-year-old housewife. “It’s worth taking money from my savings if I consider any prize as part of the return.”

The Sky Tree will top China’s Canton Tower, the tallest at 600 meters, when it’s completed this year, according to the Council on Tall Buildings and Urban Habitat. The tallest building in the world is Dubai’s Burj Khalifa at 828 meters, according to the council.

Softbank, Mazda

Softbank Corp., the nation’s third-biggest wireless carrier ranked BBB+ by Japan Credit Rating Agency, last week sold 45 billion yen of bonds with a 1.1 percent coupon maturing in January 2016 and 10 billion yen of 1.66 percent coupon debt due in January 2018. Mazda Motor Corp., ranked BBB by Rating and Investment, will issue 20 billion yen of five-year bonds at a 0.84 percent coupon on Jan. 27.

BBB rated bond sales rose by 12 percent last year to 1.3 trillion yen, according to data compiled by Bloomberg.

“Investors are chasing higher-yielding bonds for the extra interest,” said Kazuma Ogino, a credit analyst at Nomura Securities Co. “For Tobu, the Tokyo Sky Tree is also becoming a hot topic, giving an extra boost to the company’s name recognition and its efforts to market bonds to individuals.”

Tobu’s rate is 38 basis points higher than the government’s most recent three-year notes marketed to individuals and compares with 0.54 percent on three-year notes sold to the same class of investors in 2005. Average yields on the nation’s BBB rated securities are 52 basis points higher than those on government debt, according to figures from Bank of America Merrill Lynch.

Three-Year Bonds

The last time Tobu sold three-year bonds to individuals, it paid a 0.99 percent rate. The company’s 1.44 percent securities due in July 2014 yielded 0.7 percent as of Jan. 24, according to Japan Securities Dealers Association.

The spread between AA rated and BBB ranked Japanese corporate bonds was 28 basis points on Jan. 24, the lowest since Feb. 8, 2008, according to Bank of America Merrill Lynch data.

Benchmark 10-year government bonds dropped for a third day yesterday as Bank of Japan policy makers predicted an economic expansion of 3.3 percent in the year ending March 31, compared with the 2.1 percent estimated in October. The Nikkei 225 Stock Average advanced 1.2 percent.

Ten-year bond futures for March delivery fell 0.22 to 139.39 late yesterday on the Tokyo Stock Exchange.

The yield on the 10-year bond due December 2020 rose 1.5 basis points to 1.245 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker.

The extra yield 10-year Treasuries offer over similar-maturity Japanese government debt widened to 2.18 percentage points on Jan. 24, up from 2010’s low of 1.46 percentage points on Sept. 7.

Refinancing Needs

Tobu will use proceeds from the sale to refinance maturing individual consumer bonds, not for the tower, according to Tomoya Sugiyama, a manager in the finance and accounting department at the railway operator. The Tokyo communications tower will cost an estimated 65 billion yen and is being funded by loans.

Investors who buy 1 million yen of the individual bonds will be eligible to win one of 500 overnight stays at a Tobu hotel with a view of Tokyo Sky Tree, according to the prospectus. The draw also includes 1,000 tickets for lunch at the hotel and 1,000 Tokyo Sky Tree pass holders.

“We’re offering the prizes as a way to increase awareness of the tower,” said Sugiyama. “Interest is very high in the bonds.”

Individual Investors

Tobu sells bonds yearly to individual investors to increase its investor base, according to Sugiyama. It sold three-year bonds with a 0.54 percent coupon in 2005, he said.

Japanese railway companies are looking for ways to increase passengers as the population declines. Tokyu Corp., a Tokyo-based rail and retail company, is building a 34-story complex to attract customers to its station in Shibuya, while Keikyu Corp. opened a station to serve a new international terminal at Haneda Airport last year.

“Japanese railway companies need to invest to draw more customers,” said Kazusada Hirose, a senior credit officer at Moody’s Japan K.K. “Sky Tree has boosted Tobu’s recognition and is more successful than expected.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE