Photographer: Akio Kon/Bloomberg

Billionaire Yanai's Uniqlo Bonds a Relief From Negative Yields

  • Fast Retailing raises $2 billion at low end of spread range
  • Bonds 'appealing from a diversification standpoint': Daiwa

Billionaire Tadashi Yanai’s Fast Retailing Co., operator of the Uniqlo apparel brand, sold Japan’s biggest bond since July in a rare deal by one of the nation’s retailers.

The 250 billion yen ($2.1 billion) sale to institutional investors included 100 billion yen of five-year notes that priced at 0.291 percent, according to a statement from Nomura Holdings Inc., which co-managed the deal. Fast Retailing’s debut issue is larger than the entire amount of regular yen bonds sold by the nation’s retailers since the start of 2013, according to data compiled by Bloomberg.

With Japanese government bonds out to three years paying negative yields, and domestic corporate debt sales down 28 percent in 2015, Yanai’s notes sold at the lowest spread indicated in guidance by brokers last week. Bond investors shrugged off the retailer’s first loss in four quarters as the AA rated company holds 325 billion yen of cash and equivalents in excess of debt.

“There is no sign of JGB yields rising any time soon so there is strong demand for credit investments,” said Kenji Serizawa, a credit analyst at Daiwa Securities Group Inc. “Retailers sell very few bonds so when a name like Fast Retailing comes to the market, it’s appealing from a diversification standpoint.”

The five-year notes sold by Fast Retailing priced at 25 basis points over Japanese government bonds, the lower end of guidance of between 25 to 31 basis point offered by sale managers on Dec. 4. The three-year bonds priced at 0.11 percent, the minimum set for the coupon.

The deal was more than two-times oversubscribed with investor demand of about 600 billion yen, according to details from Nomura, which managed the offering with Mitsubishi UFJ Morgan Stanley Securities Co. and SMBC Nikko Securities Inc. Insurance companies, banks, asset managers and public institutions were among buyers of the bonds, according to Nomura’s syndicate department.

Fast Retailing said in a filing Friday that it will use about 200 billion yen of the proceeds for capital investment, and the remainder of the funds for operations including the expansion of sales overseas. Yukie Sakaguchi, a spokeswoman for Fast Retailing in Tokyo, said the bond sale was a first for the retailer and that it doesn’t have any plans at present for future sales.

The retailer’s stock tumbled 9.8 percent on Oct. 9, the day after the company forecast profit that missed analysts’ estimates following losses at its Uniqlo operations. Yanai’s goal to turn Asia’s biggest clothing retailer into a world leader with sales of 5 trillion yen by 2020 faces a hurdle from its operations in the U.S., where rapid expansion amid “relatively low recognition” of the Uniqlo label has led to continued losses.

Tadashi Matsukawa, the Tokyo-based head of fixed-income investment at PineBridge who bought a small amount of the bonds, said that while the deal was popular with Japanese fixed-income investors, he had hoped there would be a little higher spread on the notes, particularly as extra yields overseas widen in anticipation of a U.S. rate increase.

“From a credit perspective, its finances are good and it’s unproblematic,” Matsukawa said. “With the evaporation of base interest rates, investors have little choice.”

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