Tokyo, July 19: The recent pick-up in corporate bond issuance in Japan is a short-term trend as companies are still striving to reduce debt, analysts said. Japanese corporations had issued 551 billion yen ($5.09billion) of bonds in July as of Tuesday, more than 80 per cent of the monthly average over the past three months. The increase has multiple causes, most reflecting short-term factors, according to analysts.One is the rush by Japanese companies and banks to beat the expected rise of interest rates by the Bank of Japan, which will push up fund-raising costs. Many companies held back from the market in June during the rush of annual shareholders meetings.
"The increase this month is due to one-off factors," said Noboru Yamaguchi, senior economist at Tokyo-Mitsubishi Securities.
"Corporate capital spending is increasing, but not to a level where corporations have to depend on outside fund-raising. They will finance capital spending by using cash generated from restructuring," he said.
According to an estimate by Credit Suisse First Boston in Tokyo, Japanese corporations were sitting on a hefty 13 trillion yen worth of free cash flow or operating cash after restructuring, capital investment and dividends in the first quarter of 2000. The amount of corporate bonds issued over the past year to March tumbled to 7.8 trillion yen, down from 10.5 trillion yen the previous year. The amount is expected to languish around 8.0 trillion yen this business year, according to Masaru Hamasaki, a manager at Zenshinren Bank.
"Bond issuance by manufacturers will decrease further, while financial institutions, especially city banks, are likely to issue more," Hamasaki said. Data from Japan Securities Dealers Association showed that financial institutions accounted for nearly half of the corporate bonds issued over the past month.
Bank of Tokyo-Mitsubishi was among the latest, offering 230 billion yen of three-year to 20-year bonds last week, the largest one-time issuance ever. City banks, or banks with branches nationwide, are increasing bond issuance despite the fact overall Japanese bank lending has fallen for 30 straight months.
City banks are tapping the bond market to raise long-term funds following regulatory changes which took effect last October. Previously only long-term credit banks had been allowed to issue bonds with maturities of five years or longer. Analysts said Japanese banks are eager to raise long-term funds to match the average duration of their loan portfolios, which are increasing as the banks extend more home loans of 20 years or longer.
Zenshinren's Hamasaki said time deposits had been Japanese banks' main source of funding, and that was a problem as time deposits of less than three years accounted for 80 to 90 per cent of total deposits.
-- (Reuters)
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