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NTT's record bond issue to wrap up bumper year for Japan corporate bond market

Published 12/11/2020, 02:30 AM
Updated 12/11/2020, 02:30 AM
© Reuters. The logo of NTT (Nippon Telegraph and Telephone Corporation) is displayed at the company office in Tokyo

© Reuters. The logo of NTT (Nippon Telegraph and Telephone Corporation) is displayed at the company office in Tokyo

By Hideyuki Sano and Makiko Yamazaki

TOKYO (Reuters) - Japan's Nippon Telegraph and Telephone (OTC:NPPXF) (NTT) launched the country's biggest-ever corporate bond sale worth 1 trillion yen ($9.57 billion) on Friday, as the telecom giant doubled its borrowing plan encouraged by robust investor interest this year.

Corporate bond issues in Japan have already surpassed the annual record set last year of 13.0 trillion yen so far in 2020, ahead of debt sale rush in December, according to Refinitiv data.

"After COVID-19, Japanese corporations are trying to accumulate much more money on their balance sheets, so demand for financing is increasing, which is why many companies are issuing corporate bonds in addition to bank loans," said Toshiyasu Ohashi, chief credit strategist at Daiwa Securities.

"There's hope of keeping this volume next year because we know COVID-19 won't disappear so quickly, and many companies are thinking the market is much more attractive."

Companies are benefiting from investors who are squeezed by plunging global bond yields, stepping up their borrowing targets to fund investment, replenish working capital, and to pay back maturing higher-yielding debt.

NTT needed longer-term funding after its 4.3 trillion yen tender offer to make its wireless unit NTT Docomo (OTC:DCMYY) a wholly-owned subsidiary, a transaction it has just finished earlier this month.

The bonds, offered by NTT's financial arm NTT Finance in four tranches, attracted such strong investor appetite that the firm increased the issue to 1.0 trillion yen from its original plan of 500 billion yen, an NTT spokesman said.

Its 10-year bond, the biggest tranche, carries a yield of 0.38%, about 37 basis points above Japanese government bonds.

When there is a big bond issue, investors would normally offload some of other bonds they hold to make room for new bonds but this time there were no such sales, said a trader at a Japanese brokerage, highlighting investors' thirst for yields.

"As global bond yields have plunged, the relative attraction of Japanese bonds is increasing. And corporate bond yields are becoming attractive enough for life insurers like us," said an investment manager at one life insurance company.

The bumper year for the bond market came as banks, traditionally the dominant players in Japan's debt market, stepped up lending aggressively as they respond to a rare spike in funding demand after the pandemic.

"The fact that corporate bond issues did well despite increased bank lending suggests borrowers are re-discovering the benefit of corporate bonds," said Nana Otsuki, chief economist at Monex Securities.

Still, Japan's 75 trillion yen corporate bond market is dwarfed by banks, which saw their lending growing about 6% from a year earlier in past several months, the fastest growth in this century, to around 570 trillion yen.

© Reuters. The logo of NTT (Nippon Telegraph and Telephone Corporation) is displayed at the company office in Tokyo

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