Sony 27% Convertibles Jump Revives Market in SlumpYusuke Miyazawa
A 27 percent rally in Sony Corp. convertible bonds since their debut 10 weeks ago is whetting the appetite of investors for Japanese equity-linked debt sales, which slumped to a seven-year low last year.
Sony’s 150 billion yen ($1.7 billion) of zero coupon notes rose to 128.8 yen yesterday, from 101.6 yen when they were sold on Nov. 14, Nomura Holdings Inc.’s prices show. That’s triple the 8.7 percent gain for Japanese convertibles in the period and compares with a 6.5 percent increase for similar securities worldwide, according to UBS AG indexes. Sales of the bonds in the country fell 15 percent to 280 billion yen last year, the lowest since 2005, data compiled by Bloomberg show.
The Topix stock index climbed for 10 straight weeks, the longest advance since 1986, after Prime Minister Shinzo Abe called for unlimited monetary easing to end deflation. The rally bolstered Sony convertibles, even as the yield premium on its non-exchangeable bonds rose 16 basis points in the period. As much as $14 billion of convertible debt will be redeemed in Japan this year, opening the room for more issuance, according to Barclays Plc, the world’s fourth-largest underwriter of equity-link notes this year.
“Consumer electronics companies can receive a strong reception in the convertible bond market, as illustrated by Sony,” Nick Smith, Hong Kong-based head of convertible bond origination in the Asia-Pacific region for Barclays, said in a telephone interview Jan. 18. “We expect there to be more offerings in the market this year because the share rally makes issuers more comfortable selling convertibles.”
The Topix index has surged 24 percent to 897.62 since Nov. 14, a day before Abe called on the BOJ to provide unlimited cash. Sony stock climbed 37 percent to 1,189 yen in the period.
Goldman Sachs Group Inc. raised its six-month target for the benchmark to 1,000 from its earlier assessment of 950 and the 12-month outlook to 1,100 from 1,000, according to a note to clients released yesterday.
Sony’s five-year zero-coupon bonds offered on Nov. 14 may be converted into Sony stock at 957 yen per a share, 10 percent above its closing price on the day. The notes rose 1.4 percent to 130.6 yen per a 100 yen face value as of 3:38 p.m. today, outperforming the Topix index and reversing two days of declines, according to Nomura prices.
ABC-Mart Inc., a Tokyo-based shoe retailer, offered last week 33 billion yen of zero-coupon convertible bonds due 2018, data compiled by Bloomberg show. The shares was unchanged at 3,405 yen today, versus the 4,588 yen conversion price, the data show.
“Sony’s success is helping change investors’ perception of convertible bonds,” Noriyuki Murakami, who oversees 4.8 billion yen of convertible debt including Sony notes at Sumitomo Mitsui Trust Asset Management Co., said in a telephone interview from Tokyo yesterday. “Improving market conditions indicate that there will probably be more companies like Sony and ABC-Mart choosing convertibles for financing.”
George Boyd, a Tokyo-based spokesman for Sony, declined to comment, citing company policy not to comment on market moves.
Elsewhere in Japan’s credit markets, South Korea’s KT Corp. raised 30 billion yen in Samurai bonds, this year’s first sale of the notes by an overseas issuer in Japan, according to data compiled by Bloomberg. The telecommunications company offered 5 billion yen of 0.59 percent two-year debt, 18.2 billion yen of 0.7 percent three-year securities and 6.8 billion yen of 0.86 percent five-year bonds, the data show.
Japan’s corporate bonds have handed investors a 0.24 percent return this year, compared with a 0.18 percent gain for Samurai bonds and 0.4 percent advance in sovereign notes, according to Bank of America Merrill Lynch index data. Company debt worldwide was little changed in the period.
Yields on Japan’s benchmark 10-year government bonds was little changed at 0.73 percent as of 3:43 p.m. in Tokyo today. The securities yielded 109 basis points less than similar-maturity U.S. Treasuries, compared with 106 a year earlier.
The yen weakened 0.73 percent to 89.34 per dollar as of 4:17 p.m. in Tokyo today. It lost 12 percent in the past three months, the most among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The yen’s weakening was spurred by Abe, Japan’s seventh prime minister since 2007, who urged the central bank to double its inflation target to help revive the world’s third-biggest economy. The Bank of Japan heeded that call, saying on Jan. 22 after a policy meeting that it will raise the price-increase goal to 2 percent and move to open-ended asset purchases starting in January 2014 to meet the target.
“The change in political leadership is a major contributor to the improving prospects for convertibles,” Murakami said. “The markets have yet to fully reflect the positive implications.”
Sales of convertible notes by Japanese companies slumped for the second straight year in 2012, declining 15 percent to 280 billion yen after a 16 percent drop in the preceding period, according to data compiled by Bloomberg. Sony’s notes accounted for more than half of the offerings last year.
This year’s redemptions include 33.2 billion yen of Softbank Corp.’s 1.5 percent notes due in March and 200 billion yen of Sharp Corp.’s zero-coupon bonds in September. Softbank’s securities traded at 135.8 yen per a 100 yen face value as of 3:46 p.m. today, according to Nomura prices, while Sharp notes rose to 85.75 yen from a record low 43.1 yen on Oct. 18, Tokyo Stock Exchange prices show.
Sony posted in November a net loss of 15.5 billion yen for the three months ended Sept. 30, its seventh straight quarterly loss. The Tokyo-based company, which has 256 billion yen of debt maturing by December, kept its forecasts to report the first annual profit in five years.
“Investors have done very well in deals such as Sony’s,” Barclays’ Smith said. “Getting rewarded like that for taking risk only whets their appetite for more of such deals.”