Mitsui OSK Bonds May Suffer If Earnings Outlook Cut, Mizuho Says

  • Mizuho Securities analyst Tono says note spreads may widen
  • Cites forex volatility after Brexit as threat to company

The bonds of Mitsui OSK Lines Ltd., Japan’s second-largest shipping company by market capitalization, may suffer as volatile currency markets after Britain’s vote to leave the European Union could prompt the firm to cut its earnings outlook, according to Mizuho Securities Co.

That would mark a shift after the extra yield investors demand to hold its 0.97 percent notes over government securities dropped to a six-month low of 133 basis points Wednesday.

“Volatile exchange rates since the Brexit vote mean Mitsui OSK may need to revise its earnings forecast,” said Mizuho Securities analyst Shogo Tono. “Though they have been partly assisted by the cheaper yen and fuel costs until now, the shipping industry is still facing a market downturn.”

The Bank of Japan’s negative rate policy has fueled investor demand for assets that provide some yield. That has helped drag down perceptions of corporate bond risk. Credit-default swaps on Mitsui OSK’s debt dropped to 140 basis points last week, the lowest since October.

But the recent gains in bonds of Mitsui OSK and its peer Kawasaki Kisen Kaisha Ltd. don’t reflect the companies’ fundamentals, according to Mizuho Securities’ Tono.

A Mitsui OSK spokesman, who asked not to be identified citing company policy, declined to comment.

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