Toyota Motor Credit Corp sold ¥50bn ($476m) of five-year global notes, tapping international investo...
Toyota Motor Credit Corp sold ¥50bn ($476m) of five-year global notes, tapping international investors' growing demand for Japanese bonds, and then swapped its payments to a floating dollar rate. More companies are selling yen bonds, in part because it's becoming cheaper to swap yen obligations into dollars or euros.
Toyota's borrowing cost after the swap was about seven basis points more than the three-month London interbank offered rate, currently 6.06%, according to Bloomberg analytics.
Toyota Credit's all-in borrowing cost after the swap "was very competitive to what we could have done in a larger dollar deal or in Europe", while also giving the company greater currency diversification, said Lloyd Mistele, vice president in treasury at Toyota Credit. He declined to disclose Toyota's actual cost premium above Libor, though confirmed it was more than five basis points. It was the world's first global corporate issue sold in fixed-rate yen, Mistele said. Less than 15% of the bonds were sold in Japan.
Japanese government bonds gained 12.56% so far this year more than any other industrialised country's debt when adjusted for currency changes, according to Salomon Smith Barney. That strong performance has lured international investors to load up on all kinds of yen-denominated debt.
Mistele said: "There is a view that Japan is slowly healing and would be a place to put more money." Swap Savings Toyota's sale follows a ¥100bn five-year global issue by KfW International Finance and last month's ¥75bn European Investment Bank issue. General Electric Capital Corp led the rush of yen bond sales with a ¥30bn issue in July and another ¥50bn in late September.
Jeff Werner, GE Capital's senior vice president in corporate treasury and global funding, said: "For the size of issues, we felt the domestic market became fairly priced."
Toyota's 1% bonds were sold at 18 basis points more than Japanese government bonds of comparable maturity. Merrill Lynch International and Nomura International managed the sale and JP Morgan & Co. arranged the swap.
In the past four weeks when Toyota was preparing today's sale, there were "times when demand was there but, quite frankly, swaps were not," he said. "We had to time it carefully."
The 'basis swap', or cost of swapping yen obligations to dollars, is currently about 15 basis points at the five-year maturity, according to Tullett & Tokyo Securities. Last November, that basis swap rose as high as 48 basis points and in August it was 23 basis points.
When the basis swap was higher, "it didn't make any sense" for non-Japanese companies to sell bonds in the yen market, said Andrew Asbury, Nomura's head of global debt syndicate.
"The economics that borrowers can get in the yen market tends now to match more closely what they can find in domestic currencies. The domestic yen market has substantially tightened in relationship to Japanese government bonds and the international market has widened out."
Toyota Credit, the U.S. financing arm of Toyota Motor Corp, is rated AAA with a negative outlook by Standard & Poor's Corp. and AA1 by Moody's Investors Service one notch below the rating company's top investment grade.
To be sure, not all yen borrowers are using the swap market. GE Capital is curtailing its use of currency swaps before a derivatives accounting rule, known as FAS-133, goes into effect next year, Werner said.
The company kept both of its yen-based "Samurai" bonds this year as yen obligations and used the proceeds to finance its Japanese assets, he said.
Selling in the yen market was cheaper than selling in other currencies, thanks to an innovative arrangement that the underwriter, Morgan Stanley Dean Witter & Co., made to lower GECC's issuance costs, he said.
When selling Samurai bonds, foreign companies must pay fees to "the paying agents, underwriters, confirming banks and all sorts of other entities whose functions we don't even understand," Werner said. "Morgan Stanley has found a way to reduce those costs."
Jonathan Tower is a Bloomberg reporter in New York
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