SoftBank Corp.’s second bond sale to individual investors in three months demonstrates billionaire Masayoshi Son’s ability to undercut rival bidders for Sprint Nextel Corp. with lower funding costs.
Japan’s third-largest mobile phone operator plans to raise 400 billion yen ($4.2 billion) by issuing five-year notes, in the nation’s biggest retail offering by a non-financial company, according to data compiled by Bloomberg. The 1.74 percent yield offered by the securities compares with 0.295 percent for Japan’s sovereign bonds and the 4.25 percent rival bidder Dish Network Corp. paid to sell similar-maturity debt in April.
Son is seeking to tap the $8.6 trillion in savings at Japanese households just as Sprint considers delaying the June 12 shareholder vote on SoftBank’s $20.1 billion takeover proposal to consider Dish’s counterbid. While the $25.5 billion offer from the U.S. satellite television company is higher, Japan’s fastest growing wireless carrier has argued that the deal would load the resulting company with too much debt.
“The company’s ability to raise that much money from individual investors is where it’s really superior to Dish, which has to pay more to sell debt,” said Hiroaki Hayashi, who manages 1.6 trillion yen of fixed-income investments at Fukokushinrai Life Insurance Co. in Tokyo. “SoftBank simply wouldn’t be able to borrow at this level of cost if it wasn’t for private investors.”
The extra yield institutional investors demand to own SoftBank’s 70 billion yen of 1.467 percent notes due March 2017 instead of government debt was at 105 basis points yesterday, down from 137 at the time of the offering in March, according to data compiled by Bloomberg. That compares with 18 basis points for Japanese telecommunications company bonds and 145 for peers worldwide, Bank of America Merrill Lynch data show.
SoftBank has relied on retail offerings for 65 percent of its yen bond sales in the past four years, raising 1.095 trillion yen from individual investors in the period, according to data compiled by Bloomberg. The company sold in February 300 billion yen of 1.47 percent securities maturing 2017.
The wireless carrier is counting on the popularity of its brand and that of Apple Inc.’s devices to tap 854 trillion yen of cash and bank deposits owned by the nation’s households. Japanese individual investors are often nicknamed Mrs. Watanabe because many are housewives.
Japanese households had 1,547 trillion yen in financial assets as of the end of December, according to Bank of Japan data. That compares with 32 trillion yen of debt securities and 106 trillion yen in equities and investments, the data show.
“From the point of view of bond issuers, this is a massive market that more borrowers should consider,” said Yoshimitsu Goto, SoftBank’s head of finance, in an e-mailed answer to Bloomberg’s questions yesterday. The company will use the funds to help pay for the acquisition and to repay debt, Goto said.
Dish didn’t immediately answer an e-mail seeking comment to its public relations office in after hours.
The acquisition, which SoftBank plans to complete on July 1, would give it 70 percent of Sprint, the third-largest U.S. wireless network. SoftBank won U.S. national-security clearance for the takeover last month, overcoming Dish’s contention that allowing a foreign company to control an American phone network would compromise national security.
Sprint is considering delaying the shareholder vote June 12, as it seeks a binding offer from Dish including details on financing sources, two people familiar with the matter said earlier this month. Charlie Ergen, Dish’s billionaire chairman, made the unsolicited bid for Sprint to expand into the mobile-phone industry. He wants to pair his satellite-TV operations with Sprint to provide a bigger bundle of services to customers.
Elsewhere in Japan’s credit markets, JPMorgan Chase & Co. raised yesterday 105.6 billion yen in the largest sale of Samurai bonds since October, according to data compiled by Bloomberg. The four-part offering ended a drought of more than a year for yen bond issuance to Japanese investors by U.S. borrowers, since Goldman Sachs Group Inc.’s 82 billion yen of notes in February 2012.
Samurai bonds have handed investors a 0.07 percent loss since the end of March, compared with a 0.39 percent decline for Japanese corporate notes, according to Bank of America Merrill Lynch data. Company debt worldwide has dropped 0.23 percent.
Japan’s Government Pension Investment Fund will cut its allocation of domestic bonds to 60 percent from 67 percent, the Ministry of Health, Labour and Welfare said in a statement today. GPIF, which oversees about 100 trillion yen in assets, will increase domestic shares and foreign stocks and debt, the ministry said.
The benchmark 10-year Japanese sovereign yield rose 2 1/2 basis points, or 0.025 percentage point, to 0.86 percent in Tokyo. The securities yielded 124 basis points less than similar-maturity U.S. Treasuries compared with 79 a year earlier, data compiled by Bloomberg show.
Pacific Investment Management Co. is in “no hurry” to increase its JGB holdings with 10-year yields around 0.8 to 0.9 percent, Tomoya Masanao, head of portfolio management for Japan at Pimco, the operator of the world’s biggest bond fund, said in an interview in Tokyo.
The yen traded at 96.80 per dollar at 3:36 p.m. in Tokyo today, rising more than 7 percent from the 103.74 it touched last month, the weakest since October 2008. The dollar plunged 2.1 percent against the yen yesterday, the most since May 2010.
Five-year credit-default swaps to insure Japan’s sovereign notes were at 79.5 basis points yesterday, up from 54 on May 13, which was the lowest since November 2010, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. An increase in the contracts signals worsening perceptions of creditworthiness, while a decrease suggests the opposite.
The Markit iTraxx Japan index, comprised of default swaps for 50 companies, was at 97 basis points yesterday, CMA data show. The gauge closed at 159 last year.
Son, 55, is Japan’s second-richest man with a net worth of $12.9 billion as of yesterday, according to the Bloomberg Billionaires Index. Almost 95 percent of his fortune is from his 19 percent stake in shares of SoftBank, where he is president. Son’s company owns a professional baseball team.
The carrier’s sitcom-styled commercial featuring a white dog as father of a human family helped it to top favorability rankings for the sixth year, according to Tokyo Kikaku Co.’s CM Data Bank. SoftBank’s retail bond offering, which is on sale until June 19, comes with a towel set featuring the dog character.
Sony Corp. is seeking to raise 150 billion yen in its first sale of bonds targeting individual investors, according to a statement to Japan’s Finance Ministry. Orix Corp. offered 20 billion yen of 1.126 percent 10-year notes in April aimed at such buyers, while Shinsei Bank Ltd. sold 10 billion yen of subordinated bonds, according to separate filings from the companies.
“Retail bonds can offer investors a better rate than savings accounts or sovereign notes without the risk that comes with a stock investment,” said Mana Nakazora, Tokyo-based chief credit analyst at BNP Paribas SA. “One difference from selling debt to institutions for the issuer is that individual investors are less likely to dump the bonds when something goes wrong.”
SoftBank benefited from being the sole domestic carrier to offer the iPhone from 2008 until last year when it was joined by KDDI Corp. SoftBank added 3.53 million new subscribers in the year ended March 31, compared with 1.4 million at NTT DoCoMo Inc., the Japan’s biggest carrier, and 2.6 million at KDDI, the country’s No. 2, according to data provided by companies.
The acquisition of Overland Park, Kansas-based Sprint’s 55.2 million subscribers would increase SoftBank’s total customer base including its subsidiaries to 97 million, the company said. DoCoMo has about 61.5 million subscriptions.
SoftBank has 130 billion yen retail bonds maturing Sept. 17 and 94.9 billion yen of notes next year, according to data compiled by Bloomberg. The company’s weighted average fixed coupon fell to 1.75 percent in the first quarter, from 3.77 three year earlier.
“You could say individual bond investors are SoftBank’s main bank,” Fukokushinrai’s Hayashi said. “Their debt offerings also serve a public relations function, promoting SoftBank’s services in what amounts to a tight integration of its fiscal and operations strategies.”