Revived corporate bond deals in Japan underline need for funding

TOKYO – Japanese corporate issuers are rekindling some shelved yen bond deals in a sign of pressing funding needs even as investors seek fatter premiums.

Suntory Holdings, one of a slew of firms that cancelled or delayed deals in April due to sharp market fluctuations, is considering resuming the sale in May. Another beverage group, Asahi Group Holdings, sold yen bonds on April 25 in an offering that was postponed at the start of the month. 

Companies paid about 60 basis points more than Japanese sovereign debt on average in April for new issuance, data compiled by Bloomberg showed. That is near the highest since June 2024, highlighting how it has become harder for borrowers and buyers to agree on prices. As well as the pulled deals, borrowers failed to sell out bonds in the usually stable local government debt market.

Premiums to sell new bonds have, of course, risen in global credit markets as well, but volatility is particularly tricky for Japan to navigate, given that the market has been less exposed to extreme swings after years of rock-bottom interest rates. It matters right now because there is strong demand for funding from Japanese companies as the economy emerges from years of deflation.

“Many investors are demanding wider spreads as the environment is volatile and there’s uncertainty,” said Mr Noritaka Oda, head of debt syndicate at SMBC Nikko Securities, adding that new issuance premiums may rise another five to 10 basis points in the next month or so. 

Fund managers are hunting for deals, especially as they look to put funds to work at the start of the financial year in April. Issuers are also trying to pinpoint the best time to sell bonds before the Bank of Japan raises interest rates again, and to meet funding needs.

SoftBank Group leant on its individual investor base to raise a record 600 billion yen (S$5.5 billion) from retail bonds earlier in April.

Several deals in the Asian dollar bond market were also delayed in April amid unpredictable markets, but those issuers have started to trickle back. 

In Japan, corporate bond sales have almost doubled over the past decade to a record last fiscal year, raising the stakes in the once relatively calm market. The turmoil stemming from US President Donald Trump’s tariffs is the first major shock since the pandemic, said Mr Masahiro Koide, joint head of the capital markets division at Mizuho Securities.

Issuers are testing how much extra they need to pay to attract investors, with average spreads climbing for a third month. They are up from 54 basis points in March, according to the data which includes financial issuance. 

The widening premiums are more pronounced on some deals. Japan Tobacco sold 50 billion yen of five-year notes at a spread of 38 basis points earlier in April, while similarly rated Sony Group paid a premium of 24 basis points on that tenor in late February.

Suntory initially halted its hybrid bond offering because some investors were demanding over 20 basis points more than what it could agree to pay, Mr Yukihiro Iriyama, senior general manager at the finance department at the firm’s corporate management and finance division, said in an interview with Bloomberg News.

Japanese credit investors are not entirely risk-averse, but are focusing on liquid deals from frequent issuers such as highway companies, said Mizuho’s Mr Koide. BLOOMBERG