Berkshire Hathaway plans Yen bond amid global debt binge

Rising interest rates in Japan and the likelihood of further monetary tightening by Bank of Japan have made local investors cautious about scooping up corporate bond deals this year. Photo by Andrew Harnik/Getty Images/Postmedia files

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The proposed sale from veteran investor Warren Buffett’s company would bring it back to the yen market for the second time this year, and spurred speculation it may be mulling more investments in Japan. The local yen debt market has seen a pick-up in bond offerings this week by overseas issuers with Renault SA and Slovenia getting ready to price deals.

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The bond mandate is another sign of how foreign investors are ramping up interest in Japan, where major equity benchmarks have repeatedly hit new highs recently. Berkshire is one of the biggest borrowers in yen bond markets, and attracts increased attention given the company’s stakes in Japan’s largest trading companies.

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“Given that Berkshire is currently holding a considerable amount of cash, the fact that it is issuing yen-denominated bonds suggests that it sees investment opportunities in Japan — likely directing funds toward trading companies,” said Hiroshi Namioka, chief strategist at T&D Asset Management Co.

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The shares of the companies have more than tripled since the veteran investor first revealed stakes in Japan’s five major trading companies in August 2020. Berkshire started acquiring stakes in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. from 2019, Buffett said in his letter to shareholders this year.

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The potential issuance is a sign that “Japanese trading houses are still cheap from a global perspective and are considered undervalued, which makes this move positive” for the shares, T&D’s Namioka said.

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Sumitomo rose 3.8 per cent in Tokyo trading, while Mitsui and Itochu added around three per cent, outperforming the Topix. Gains in Itochu have been spurred on by a dividend hike and stock split.

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While Berkshire agreed to keep holdings below 10 per cent for each company’s shares, as the firm approached that limit, the five companies consented to moderately relax the ceiling, he added.

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“Over time, you will likely see Berkshire’s ownership of all five increase somewhat,” Buffett wrote this year.

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Global bond sales have soared to a record this year of about US$6 trillion as borrowers take advantage of easy market conditions to fund everything from the boom in artificial intelligence projects to a revival in acquisitions.

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Berkshire’s double A ratings and the potential to pick-up extra spread than on local corporates of comparable credit scores have made the firm’s deals some of the largest in yen markets in the past.

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The Omaha, Nebraska-based firm has sold almost ¥2 trillion (US$13 billion) of bonds since its debut in 2019, making it the largest foreign issuer of yen notes in that period.