Epic numbers
Inflation is hard to come by in slow-growth Japan, despite the central bank’s best efforts, but one issuer still managed to almost double the previous record with the biggest yen bond in history.
Inflation is hard to come by in slow-growth Japan, despite the central bank’s best efforts, but one issuer still managed to almost double the previous record with the biggest yen bond in history.
Nippon Telegraph and Telephone's ¥1trn (US$9.6bn) four-tranche offering smashed a record that had stood for almost 10 years.
It showcased the depth of liquidity available to top issuers in Japan, as well as the yen market’s ability to support major acquisition financings.
But it was the extent of demand that left market participants stunned.
The book size of ¥2.44trn surprised bankers and investors alike, redrawing the limits of possibility in the notoriously conservative Japanese market.
"This leads us to believe the market has the potential to expand in the future," said one Japanese investor.
"I have been watching the market for many years, but I never thought there would be a ¥1trn deal," said another.
Before NTT came to market, the upper limit for a Japan corporate bond had been set firmly at ¥500bn, a figure first achieved by Panasonic in March 2011 and subsequently equalled only by Mitsubishi UFJ Financial Group, Takeda Pharmaceutical and SoftBank Group.
Including agency and overseas issuers, Japan Housing Finance Agency’s ¥514.3bn offering in 2011 and a ¥550bn three-part yen bond from Italy back in 1995 were the high-water marks. NTT exceeded both by a big margin.
Even lead managers SMBC Nikko, Mitsubishi UFJ Morgan Stanley, Mizuho, Nomura and Daiwa were not convinced NTT would raise more than ¥800bn at the beginning of marketing. The offering also needed to be carried out with extra care, so as not to disturb other deals.
NTT, however, had just completed the ¥4.3trn buyout of mobile subsidiary NTT DoCoMo and was looking to refinance a meaningful piece of the bridge loans that paid for the tender offer.
The banks soft-sounded the deal with wider price ranges than usual to entice investors and ensure the issuer would be able to draw ¥1trn of demand, before setting a minimum yield for each tranche.
"They set the right ranges to ensure the target size, which was good," said a banker away from the deal.
The floors set were 0.04% for the three-year tranche, 0.18% for the five-year, 0.28% for the seven-year and 0.38% for the 10-year. Because demand built up far more than lead managers had anticipated, final pricing landed at or near those levels. Across the four tranches, there were over 1,100 orders in the book.
The bonds were issued by NTT Finance and guaranteed by NTT, rated A/AAA (S&P/JCR).
In another sign of its depth, the yen market had no trouble absorbing another big ¥200bn deal a week later from Panasonic, which also turned out to be well oversubscribed.
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