Nomura Tops Yen Bond League Table as Abe Waits on Japan Inc.

  • Nomura poised to overtake Mizuho, last year's top underwriter
  • Japan corporate bond offerings fall to lowest in nine years

Nomura Holdings Inc. is set to retake the top spot for underwriting Japanese corporate bond sales in a year when issuance fell to lowest since 2006 as companies restrained investment.

Japan’s largest brokerage managed 1.3 trillion yen ($10.7 billion) of offerings by local issuers, or 21.6 percent of the total to Dec. 21. That leaves it poised to eclipse Mizuho Financial Group Inc., last year’s leader, for the No. 1 spot, excluding self-led deals, Bloomberg-compiled data show. Total corporate bond sales are set to shrink 18 percent from 2014 to 6.92 trillion yen, the data show.

While Japan avoided slipping into a recession in the third quarter after the government revised up figures this month, Prime Minister Shinzo Abe’s on-again-off-again economic recovery has failed to get companies to spend at the level needed to change Japan’s potential growth outlook above 0.5 percent. Japanese companies have enjoyed record profits and cash holdings since Abe came to power three years ago and with no indication that interest rates are set to rise, they aren’t rushing to lock in funds, according to Nomura.

“The government is telling companies ‘invest, invest’ but just because they are doing that I don’t think it’s going to result in a change in corporate investments,” said Toshiyasu Ohashi, the chief credit analyst in Tokyo at Daiwa Securities Group Inc., the nation’s No. 2 brokerage. Ohashi said it’s hard to see higher bond sales by companies next year.

Billionaire Masayoshi Son’s SoftBank Group Corp. was the biggest issuer of corporate notes in Japan this year, selling 920 billion yen in three offerings to individual investors rather than institutions. Panasonic Corp., the maker of Viera televisions, was the second-biggest non-financial issuer of notes, offering 400 billion yen, followed by a 250 billion yen debut sale this month by billionaire Tadashi Yanai’s Fast Retailing Co.

“Just talking with corporate bond issuers, there’s no feeling of a pressing need to raise funds,” Masanori Azuma, a managing director at Nomura’s debt capital markets department, said in an interview in Tokyo. Azuma said he expects company note sales in 2016 to be around the same level as this year, or lower.

The yield premium that investors demand to hold Japanese corporate debt climbed three basis points to 27 from the start of June, resulting in some regular issuers including trading and property companies postponing offerings, at a time when local banks are more than ready to provide loans, according to Azuma.

Loan Jump

Lending by banks rose to just over 428.2 trillion yen in November, the highest since 2002, according to Bank of Japan data.

Company managers aren’t rushing to make investments. Business spending rose 0.6 percent in the three months ended Sept. 30, after declining in three of the previous six quarters, according to government data released this month.

Japan’s biggest lenders -- Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group -- sold some of the highest-paying bonds in Japan this year in the form of subordinated debentures that count as higher-tier capital and may be written down in a crisis. In July, Mizuho issued 300 billion yen in such debt that paid a yield of 2.75 percent in a private placement, almost nine times the average 0.31 percent paid by the nation’s companies, according to Bank of America Merrill Lynch data. That compares with 3.63 percent on U.S. corporate notes.

Even with the Federal Reserve raising interest rates for the first time in almost a decade earlier this month, the BOJ’s monetary stimulus looks set to hold down domestic government bond yields and promote investor demand for corporate debt that offers additional spreads, according to Kenji Sakaguchi, the chief investment officer in Tokyo at Prudential Investment Management Japan. The country’s benchmark 10-year notes paid 0.28 percent on Tuesday.

“Yields in Japan are under pressure and that is likely to become even more prominent over time,” said Sakaguchi.

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