Japan bond issuance outlook in FY02
27 May 2002
outlook for new bond issues in Japan is still limited, mirroring
downbeat business sentiment and capital-spending projections,
says Standard and Poors (S&P), the global credit rating
their conclusion, S&Ps analysts say Japanese industrial
production is still declining compared with last years
levels, even though the rate of decline has eased in recent
machinery orders (excluding volatile components) declined
6.2 per cent from the previous month in March (and 21.3
per cent below the corresponding period a year earlier),
and have not yet established a recovery trend. The number
of small and midsize firms reporting tight financial
positions significantly outnumbered those reporting easy
financial positions in the March Tankan survey.
these conditions, rising bond issuance appears unlikely
except by those firms that have urgent, immediate refinancing
needs. Despite poor fundamentals, market participants
are expecting this years issuance to surpass levels seen
in the previous fiscal year.
date this year, 192 issues have accounted for issuance
volume of US$46.3 billion (JPY5.5 trillion) in the Japanese
corporate bond market. This is up $2.2 billion from the
$44.1 billion (JPY5.3 trillion) that was raised in the
first five months of last year.
primary reason for most of the year-over-year increase
is the customary burst of issuance in April which marks
the start of the new fiscal year. Cash-rich investors
who were waiting on the sidelines to avert a possible
crisis during the fiscal yearend are now more willing
to re-enter the market, explains S&P.
was the case last year, bond-market financing remains
the exclusive privilege of investment-grade firms, with
double-A-minus rated issuers accounting for the single
largest portion of issuance. Interestingly, issuance at
the lower end of the investment-grade spectrum actually
increased this year compared to a year ago.
this issuance is by issuers that were downgraded within
the past six months, these figures also hint at the markets
willingness to absorb debt issued by lower-tier firms,
provided investors are adequately compensated in terms
of yield. It is also indicative of a gradually shifting
relationship between lenders and borrowers that is geared
increasingly towards risk-based lending as opposed to
earlier relationship-driven practices.
all firms (large, midsize and small) reported rising interest
rates charged even on bank loans in the most recent Tankan
survey. Moreover, investors search for yield is also
leading to greater interest in lower-rated bonds. The
introduction of capped depositor protection on bank deposits
has fuelled retail interest in corporate bonds, both due
to higher yield potential as well as a method of financial
diversification. As a result, spreads among single-A rated
bonds have narrowed in recent weeks.
sector, the biggest drop in new issues came from the utility
sector. Notwithstanding regulatory support for electric
power companies that facilitates low funding costs from
capital markets and banks, the sector continues to suffer
from anaemic demand in an overall low-growth environment.
Electricity usage by large industrial users was 4.9 per
cent below its year-earlier level in March, the 14th
consecutive decline. The utility sectors share
of new issues dropped from 19 per cent to 12 per cent
of total issuance. The next biggest drop was registered
in the globally challenged telecommunications sector.
issuance actually picked up in the industrial and financial
institutions sectors, both among the leading borrowers
in the bond market.