Leaning Tower of Yokohama Joins Scandals Lifting Japan Bond Risk

  • Asahi Kasei default swaps jump on tilted apartment news
  • Buying opportunities seen in scandal-hit firms' credit: BNP

A tilted apartment building in Yokohama is the latest in a series of corporate scandals to push up Japanese corporate bond risk.

The cost to insure debt of Asahi Kasei Corp. against non-payment jumped 31 basis points to 56 last week after the company said a building unit had failed to properly install the foundations. Toyo Tire & Rubber Co., which said on Oct. 14 that it had manipulated testing data, saw the yield premium on its 2017 bonds surge 67 basis points in two days to 150. The bond risk of Toshiba Corp. has tripled to 135 basis points since accounting irregularities were revealed in April.

The latest incidents came as Japan Inc. was still reeling from Toshiba’s $1.3 billion cut to its reported profit and a global recall of airbags by Takata Corp. The jump in bond risk and spreads may offer a buying opportunity for investors because companies have often been able to patch up their finances after similar scandals, according to BNP Paribas SA.

“Companies that are undergoing a credit event are a buy if you’re pretty sure they won’t go bust,” said Mana Nakazora, the chief credit analyst in Tokyo at the French bank. “You need to see whether the company makes good products, is taking appropriate steps and has finances that will withstand the scandal.”

Asahi Kasei said its subsidiary is checking the reasons why the data was modified in the installation report and it will bear all the costs of investigating and repairing the damage. Toshio Asano, the company’s president, said at a news conference on Tuesday that he deeply regrets the building flaw.

While investing in Asahi Kasei could be possible in the future, at the moment “there are a lot of things we still don’t know, like how the responsibilities will be divided up,” said Kenji Serizawa, a credit analyst in Tokyo at Daiwa Securities Group Inc., Japan’s second-largest brokerage.

Daio, Olympus

Daio Paper Corp., which was involved in an embezzlement scandal in 2011, is among companies that have seen their bonds rebound.

Its notes due in December have a spread of 95 basis points from as high as 1,057 in 2012, according to data compiled by Bloomberg.

Airbag maker Takata’s 2021 bonds have seen their extra yield narrow to 320 basis points from 464 in July. That’s still 13 times more than the spread of 24 basis points when they were issued.

In the latest internal malfeasance to hit Japan’s corporate sector, Matsumotokiyoshi Holdings Co., a drugstore chain, said on Oct. 15 it found possible accounting irregularities and is investigating the president of one unit it suspects inflated inventories to hide past losses.

Olympus Corp., which admitted to a 13-year accounting fraud three years ago, had its credit score raised to BBB+ by Japan’s Rating & Investment Information Inc. in 2013 from BBB-, the lowest investment grade.

Asahi Kasei, a Tokyo-based chemical maker, has an AA- rating from R&I, the fourth-highest level.

“It’s worth buying Asahi Kasei if it ever gets a rating downgrade,” said Nakazora of BNP Paribas. “There’s no doubt that the company will survive.”

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