Record Japan Corporate Bond May Spark Growth in Sleepy Market

(Bloomberg) -- A Japanese company is set to sell the nation’s biggest-ever corporate bond this week, but it’s still small compared with mega deals abroad, a reflection of the relatively sleepy local credit market. That may change in years ahead.

Nippon Telegraph & Telephone Corp.’s planned 1 trillion yen ($9.6 billion) note sale will put it at ninth place globally in terms of issuance size this year, lagging blockbuster deals such as Boeing Co.’s $25 billion sale.

NTT’s jumbo bond is taking place in a corporate bond market that's relatively small considering the size of Japan’s economy, a legacy of local companies’ preference for bank loans in the past. The nation has $826 billion in company notes outstanding, equivalent to 16% of last year’s gross domestic product, according to International Capital Market Association data. That compares with the U.S.’s $9.97 trillion in debt, or 47% of GDP, and China’s $6.95 trillion in onshore bonds, or 49% of economic output.

Big deals like NTT’s could help Japan’s credit market grow. Companies in sectors such as autos and telecommunications face pressure to raise funds to keep up with technological innovations, and they may become bigger issuers, according to Mana Nakazora, chief credit strategist at BNP Paribas SA in Tokyo. Japanese banks are also seeking to reduce their reliance on lending as low interest rates batter margins, another factor that may encourage companies to sell bonds.

Japanese automakers may issue more debt as they'll need to invest for the nation’s shift to making all new vehicles either hybrid or electric by the mid-2030s, according to Nakazora. Telecom firms are also eyeing investments in 5G technologies, and may face funding pressure as Prime Minister Yoshihide Suga pushes them to lower phone tariffs, she said.

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