NAGOYA -- Toyota Motor is slated to offer 20-year corporate bonds for the first time in 18 years, joining the ranks of companies that are locking in the low cost of issuing debt at highly extended maturities.
The procurement will total 50 billion yen to 60 billion yen ($453 million to $544 million) and also include a 10-year tranche. The 20-year tranche likely will carry a roughly 0.4% coupon while the 10-year note may get a coupon of around 0.1%. Both rates would represent record-low levels for a private-sector company, due largely to Toyota's high creditworthiness.
Terms will be set as soon as May 27. Toyota will use the funds mainly for capital expenditures and working capital.
The cost of selling debt normally rises with the length to maturity. The 20-year bonds issued by Toyota in 1998 had a 3% return. But the Bank of Japan's negative rate policy has helped push market rates to historic lows, creating an environment ripe for corporate fundraising via super-long-term instruments.
Superlong-term notes carry maturities of at least 11 years, exceeding the 10 years of long bonds. Because business conditions are hard to predict in the long run, issuing superlong-term corporate debt is restricted mostly to rail operators, power and gas companies and other enterprises related to infrastructure, which is known for its steady earnings. West Japan Railway, also known as JR West, in February became the first private-sector corporation to issue 40-year bonds.
The practice has expanded to other business sectors lately. Seasonings maker Ajinomoto floated 20-year notes for the first time in company history in March.
Spurring the move toward superlong-term debt is the desire for companies to secure bargain-rate funds for as long as possible. Demand also exists among investors for instruments offering returns comparatively more generous than the paltry yields taking root in the wider market.
Toyota's fundraising comes at a sensitive time for the carmaker. Profit is projected to shrink for the first time in five years in fiscal 2016. But research and development costs likely will total 1.08 trillion yen while capex is expected to reach 1.35 trillion yen this fiscal year, which would mark 2-4% year-on-year increases.
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