Japan Highway sold $500m of bonds into the Euromarket in May this year. The bonds, with an unusual maturity of five years and two months, were priced at 55.5bp over US Treasuries, or 13bp over Libor swaps. BNP Paribas and Tokyo-Mitsubishi International were joint bookrunners.
Japanese government guaranteed paper has been a rare commodity in recent years, as the domestic market offers attractive execution. In fact, this was the first Japanese government credit to issue dollars for more than a year.
Accordingly, the transaction was well received due to its rarity value. Moreover, there was also strong demand for well rated double-A names in US dollars.
BNPP sold about 60% of its bonds to Asian investors, complemented by interest from the UK, Benelux and Switzerland. TMI reported demand principally from new money accounts on the back of the current coupon and also that Asia, especially China and Singapore accounted for 55% of demand, with Europe and the Middle East taking the remaining 45%.
EuroWeek discusses Japan Highway's funding strategy with Hiroyuki Suzuki, manager in the funding division.
What amount of debt funding have you budgeted for this financial year, and how much of that have you raised so far?
With the government guarantee, we have budgeted the equivalent of ¥70bn in the international market and ¥600bn in the domestic market.
We have also budgeted ¥510bn through Fiscal Investment and Loan Programme (FILP) agency bonds, which are issued in the domestic market without government guarantee.
In the domestic market, we have raised ¥175bn with the guarantee bonds and ¥200bn through FILP agency bonds so far.
Can you explain the rationale for the $500m global issue earlier this year?
We issued the Eurodollar notes when we saw market conditions improve.
The five year and two month maturity was chosen to smooth the redemption schedule of our debt.
We believe that such maturity also met investor demands to extend the duration of their portfolios.
What changes are you finding to the investor base for your international issues, and what efforts are you making with regard to investor relations around the world?
We understand that our international issues have been bought by, and traded among, a wide range of European and Asian investors.
We make the latest information on our corporation available on our website and hope to continuously broaden our investor base.
What large and notable issues have you completed in the Japanese domestic bond market this year?
In April we issued five 10 and 20 year FILP agency bonds totalling ¥200bn.
We targeted affluent investor liquidity at the beginning of the new fiscal year and achieved pricing at 22bp, 30bp and 46bp over comparable JGBs, respectively.
Can you give a view on the key trends in the domestic bond market?
The current conditions in the domestic market are more volatile than usual, making investors very cautious.
With interest rates remaining very low, however, we expect that once market conditions stabilise, investors will again become interested in longer maturity in order to pick up higher yields.
What is the pricing differential between Japan Highway's domestic issues with and without a guarantee?
Our 10 year FILP agency bonds are traded at yields around 20bp higher than those with guarantee. However, such yield spreads between the two types of domestic issues change considerably depending on market conditions.
Which markets will you focus on in the months ahead and which currencies and why?
We are focusing on Eurobond issuance in dollars or in the euro because of their cost competitiveness and broader investor bases.
We are also willing to consider other foreign currencies depending on market conditions.
How do you compare your pricing in the international markets to other international credits from leading OECD countries? Is the spread premium payable appropriate?
We are glad to recognise that investor sentiment toward Japan has been improving significantly.
Nonetheless, we still have to admit that the spread premium we are paying now is higher than that paid by some other issuers from major OECD countries.
We hope that the positive revaluation of Japanese credits continues.