Toshiba Bonds a Buy for Nomura as Government to Reassure Banks

  • Company's debt risk rose most after Sharp in Japan last year
  • Toshiba is seeking second credit line in three months

Nomura Holdings Inc. says bank funding and government support are good reasons to buy Toshiba Corp. bonds, even as an accounting scandal made them Japan’s riskiest after Sharp Corp.

The cost to insure the manufacturer of chips and nuclear reactors against nonpayment jumped to 390 basis points last month, and was the worst performer among Japanese companies after Sharp in 2015. The yield on Toshiba’s 1.68 percent bonds due December 2020 was 304 basis points more than the sovereign, after surging to a record high of 323 in December from a low of 26 last year.

Toshiba, which last month forecast a record 550 billion yen ($4.6 billion) annual loss and had its bond ratings cut to junk, needs money to pay for thousands of job cuts and the overhaul of the businesses that make televisions and PCs. The company, which employs about 200,000 people and makes nuclear power plant equipment that the government is pushing for sales abroad, is seeking its second credit line from banks in three months that will bring its emergency financing above 1 trillion yen.

“In the end, the government will support Toshiba and the banks will provide funding,” said Toshihiro Uomoto, the chief credit strategist in Tokyo at Nomura, Japan’s biggest brokerage. “There is a risk that the bond will fall after purchasing it, but it will probably be on par in the end, so why not buy it?”

Rating Downgrade

Nomura has underwritten Toshiba’s bonds, and was one of the managers of the company’s notes due in 2018 that it sold in July last year, according to data compiled by Bloomberg.

Yukihito Uchida, a Toshiba spokesman, declined to comment on market moves.

Moody’s Investors Service last month cut Toshiba’s credit rating to Ba2, two levels below investment grade, from Baa3. The downgrade reflects concern the company’s earnings will be below Moody’s expectations and leverage will stay high “over a prolonged period,” as well as a worsening in its memory chip business, it said in a statement.

The firm’s ratings benefit from the fact that Toshiba is one of the largest companies in Japan and it “occupies a significant position in the economy and society,” it said.

Toshiba is seeking an additional 300 billion yen credit line, after receiving a 400 billion yen facility in September from Sumitomo Mitsui Banking Corp., Mizuho Bank Ltd. and Sumitomo Mitsui Trust Bank Ltd., spokeswoman Yuu Takase said last month.

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