Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

In finance, one way to make a project work if its cash flows don't look so good is to reduce the discount rate. The less a company pays for money, the easier it is to invest in things that will make that firm more valuable. Of course, those investments could also turn out to be duds. That's something Toyota shareholders should bear in mind after the carmaker raised 20 billion yen ($187 million) selling three-year bonds at a 0.001 percent coupon. At that price, even the most outlandish proposals may start looking good.

Toyota's coupon is the lowest ever for a Japanese company not backed by the government. And it already has a world-beating six fixed-rate securities with coupons equal to or less than 0.1 percent, according to data compiled by Bloomberg.

Money Going Cheap
For all the negative rates around the world, only a handful of companies have sold bonds with coupons at or below 0.1 percent, and Toyota is the most active in that group
Source: Bloomberg

Most other firms in that category are state-owned Japanese or European ones that typically invest in infrastructure. Others that are free from sovereign backing include Eli Lilly, Sanofi and Unilever, corporations that, like Toyota, depend heavily upon research and development. 

Toyota did say in its annual report that it's putting more money into self-driving cars. But that's probably not the reason it's just raised so much debt at almost no cost. It's doing so because it can. As one of the most-recognized names in Japan, Toyota's bonds rank right up there with the government itself.

For shareholders, that should be good news. As a company's cost of capital drops, textbook accounting says its return on equity should increase.

History Lesson
The last time Toyota had such a low cost of capital was before the financial crisis, at which time it was equity that was cheap
Source: Bloomberg

Unfortunately, the second part of that equation is yet to fully play out. Toyota's return on equity as calculated by Bloomberg has improved from recent lows but is still short of highs reached before the credit crisis.

Toyota's return on equity is still lower than the highs reached pre-financial crisis
Source: Bloomberg

Finance professors often say that the danger of very low costs of capital is that investments that wouldn't normally make sense start showing as profitable. The risk for investors in Toyota is that money becomes so cheap the automaker starts throwing funds at ideas best skipped. 

Toyota's ability to pay next to nothing for debt should translate into returns for shareholders. If it doesn't, questions need to be asked about what it's doing with all that cash and perhaps more importantly, does it need to be raising it in the first place.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at

To contact the editor responsible for this story:
Katrina Nicholas at