S&Ps Japan bond issuance outlook in FY02

Our Banking Bureau
27 May 2002

Reasoning 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 months.

Private-sector 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.

Amid 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.

To 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.

The 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.

As 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.