Billionaire Masayoshi Son is targeting Japanese households with bonds offering 50 times the yield on deposit accounts to help fund Softbank Corp.’s $20 billion takeover of Sprint Nextel Corp.
Japan’s third-largest carrier, the first to offer the iPhone in the nation, set a 1.47 percent yield on 300 billion yen ($3.2 billion) of four-year notes going on sale to individual investors today, Nomura Holdings Inc. said in a statement on Feb. 22. The three biggest banks offer 0.03 percent for a four-year time deposit, according to the lenders’ websites. Japanese corporate bonds pay an average of 0.58 percent while company notes worldwide offer 2.66 percent, Bank of America Merrill Lynch data show.
Softbank, which is at risk of being cut to junk grade by Moody’s Investors Service, relied on individual investors for 67 percent of 980 billion yen raised in bond sales in the past four years, data compiled by Bloomberg show. The Tokyo-based company is counting on the popularity of its brand and that of Apple Inc.’s devices to tap 840 trillion yen of cash and bank deposits owned by the nation’s households to help pay for the Sprint Nextel deal that will create the world’s third-biggest carrier.
“What helped support this company through the years isn’t the equity markets, financial establishments or institutional investors, but rather individual investors,” said Hiroaki Hayashi, who manages 1.5 trillion yen of fixed-income investments at Fukokushinrai Life Insurance Co. in Tokyo. “They are turning to their source of strength again” to fund the Sprint Nextel deal.
Moody’s and Standard & Poor’s have put Softbank’s credit ratings under review for possible downgrade on concern the acquisition may undermine its financial strength. A downgrade of one step would bring the rating to a speculative, or junk, ranking at Moody’s.
The carrier’s bonds fell on the takeover news. The spread on 100 billion yen of 0.74 percent five-year notes targeting individuals it sold in September more than doubled to 141 basis points on Oct. 12 after reports of the acquisition, and traded at 155 on Feb. 22, JS Price data show.
The company also sold last week 70 billion yen of 1.467 percent four-year notes to institutions, priced to yield 137 basis points more than government debt, data compiled by Bloomberg show. The extra yield to own the debt of Japanese companies instead of sovereign bonds was at 42 basis points, Bank of America Merrill Lynch index data show.
Japanese households owned 1,510 trillion yen of financial assets as of the end of September, according to the Bank of Japan. Cash and bank deposits accounted for more than half of the amount at 840 trillion yen, compared with 33 trillion yen of debt securities and 87 trillion yen in equities and investments, the data show.
Softbank has 186.6 billion yen of bonds maturing this year, including a 130 billion-yen retail note due Sept. 17, according to data compiled by Bloomberg.
“The Sprint acquisition requires a considerable amount of funding and we felt that retail bonds are the appropriate method of financing,” Takeaki Nukii, a Tokyo-based spokesman at Softbank, said by telephone on Feb. 22. “We also knew that there is demand from institutional investors, so we included them in the offering.”
Softbank’s founder Son, 55, is Japan’s second-richest man with a net worth of $8.9 billion as of today, according to the Bloomberg Billionaires Index. Almost 95 percent of his fortune is from his 20 percent stake in shares of Softbank. Son’s company owns a professional baseball team.
Elsewhere in Japan’s credit markets, Kyushu Electric Power Co. sold 60 billion yen of 0.65 percent three-year notes paying 60 basis points more than similar-maturity government debt, Mizuho Financial Group Inc. said in a statement on Feb. 22. The utility last offered bonds in October when it raised 30 billion yen of 0.526 percent three-year securities offering a 42 basis-point spread, data compiled by Bloomberg show.
Japan’s corporate bonds have handed investors a 0.23 percent return this month, compared with a 0.29 percent gain for the nation’s sovereign notes in the period, according to Bank of America Merrill Lynch index data. Company debt worldwide returned 0.49 percent.
Japanese Prime Minister Shinzo Abe will nominate Asian Development Bank President Haruhiko Kuroda as governor of the Bank of Japan, Japanese media reported. Abe is likely to present Kuroda to the Japanese Diet in the middle of this week, Kyodo News said, citing unidentified government sources. The Nikkei, Sankei and Asahi newspapers also reported that Abe is planning to nominate Kuroda.
The yen slid to as low as 94.77 per dollar today, a level unseen since May 2010, as investors speculate that Kuroda, 68, may help Abe to follow through on his pledges to counter more than a decade of deflation and spur a Japanese revival. The currency traded at 94.14 as of 11:43 a.m. in Tokyo.
Yields on Japan’s benchmark 10-year government bonds fell 1 1/2 basis points to 0.705 percent in Tokyo today, touching the lowest since Dec. 12. The Japanese securities yielded 124 basis points less than similar-maturity U.S. Treasuries, compared with 103 a year earlier, data compiled by Bloomberg show.
Five-year credit-default swaps that insure Japan’s sovereign bonds traded at 71 basis points on Feb. 22, compared with 123 a year earlier, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. A drop in the contracts signals improving perceptions of creditworthiness.
The Sprint announcement came two weeks after Softbank agreed to acquire a stake in competing Japanese wireless provider eAccess Ltd. to help meet bandwidth demand from iPhone users. Sales of Apple phones and tablets have helped Softbank boost earnings.
The acquisition of Overland Park, Kansas-based Sprint’s 56.4 million subscribers would increase Softbank’s customer base to 96 million in the U.S. and Japan, the Japanese company said in October. The carrier’s biggest domestic competitor, NTT DoCoMo Inc., has about 60.8 million subscriptions.
Softbank reported on Jan. 31 that net income doubled to 65.9 billion yen in the three months ended Dec. 31. Operating income jumped 24 percent to 197.4 billion yen as sales gained 7.1 percent to 923.7 billion yen, it said.
“Retail investors are easily put off by corporate bonds they are not familiar with,” Hiroshi Nakamura, a Tokyo-based independent financial planner for individual investors, said in a telephone interview on Feb. 22. “Softbank’s name is well known for its TV commercials and it gives people confidence the company won’t go under easily.”