Pedestrians walk past headquarters of Nomura Holdings in Tokyo. The
largest brokerage in Japan has regained the top spot for underwriting
corporate bonds in a market where sales shrank to the least in nine years.

Bloomberg/Tokyo


Nomura Holdings regained the top spot for underwriting Japanese corporate bonds in a market where sales shrank to the least in nine years as companies favoured cheaper bank loans.
Japan’s largest brokerage managed ¥790.4bn ($6.5bn) of offerings by local issuers, or 21.5% of the total, in the first half ended June 30, followed by Mitsubishi UFJ Morgan Stanley Securities Co at 20.2%, according to data compiled by Bloomberg. Mizuho Financial Group fell to third from the No 1 spot last year.
Corporate bond sales dropped 12% in the first half to ¥3.7tn as volatility in the Japanese market rose to a more than 11-year high and banks expanded loans for a 46th straight month in June. While companies have been slow to boost debt for investment even with record profits, corporate managers are under increasing pressure from Prime Minister Shinzo Abe’s government to put funds to good use.
“Regional banks are offering loans at extremely low rates so bonds are being replaced by lending,” said Yusuke Ueda, a Tokyo-based credit analyst at Bank of America Merrill Lynch. “Japanese companies have switched from investing within the limits set by cash flow to a more aggressive investment style accompanied by leverage.”
Major domestic corporate debt issuers boosted loans by about ¥4.8tn in the 12 months to March 31, even as bonds fell by ¥392bn, Bank of America calculations show.
“Companies that are newly entering the corporate bond market worry about their relations with their banks,” Masanori Azuma, a managing director at Nomura’s debt capital markets department, said in an interview in Tokyo. “Those that can sell bonds usually can get bank loans at low interest, and some ultimately choose loans over notes so they don’t have to turn down offers from their banks.”
Small banks with little overseas business are one of the main drivers of the jump in lending, because they are under pressure to offer clients more debt as margins disappear. The gap between what banks made on loans and what they pay out on interest to deposits fell six basis points to 0.32% last fiscal year, data from the Japanese Bankers Association show.
A surge in bond market price swings amid the Greek debt turmoil and expectations of an interest-rate increase in the US also weighed on note offerings in the first half. Volatility in Japan’s sovereign debt over 60 days rose to as high as 4.11% in March, a level unmatched since November 2003.
The average extra yield on Japanese company notes was still 24 basis points, four basis points from a seven-year low, according to Bank of America Merrill Lynch data. The 10-year Japanese government bond yield dropped to an unprecedented 0.195% in January.
“Many issuers stayed on the sidelines as the fall in JGB yields and higher volatility pushed out spreads,” said Hajime Suwa, the head of debt capital markets at Mitsubishi UFJ Morgan Stanley Securities. “It is more difficult to see spreads tightening ahead, and from June we saw more issuers moving to sell, and that will likely continue.”
Nomura’s Azuma sees bond sales in the second half accelerating, climbing to about ¥8tn for the full year. That compares with ¥8.7tn in 2014, according to Bloomberg-compiled data.
Nomura was the biggest underwriter on offerings by SoftBank Group Corp and Panasonic Corp, the two largest issuers in the first half. It was also the top manager of Samurai bonds in the six-month period, jumping four places from a year earlier.
More companies may start to heed Prime Minister Abe’s call to plow more of their record cash hoard into the world’s third- biggest economy to fuel growth. Large Japanese firms plan to boost capital expenditure by 9.3% in the year through March 2016, according to the Bank of Japan’s Tankan survey released on July 1.
“After the Lehman shock, companies overall were conscious of the need to hold high levels of cash,” said Azuma at Nomura. “There is a sense recently that holding on to too much surplus cash isn’t good.”