Yen Bond: Berkshire Hathaway's ¥430bn six-tranche Global

IFR Awards 2019
3 min read
Takahiro Okamoto

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Berkshire Hathaway's stunning ¥430bn (US$3.94bn) six-tranche Global stood out as the biggest international yen offering for almost a quarter of a century. The deal showed the kind of size the yen market can deliver for an overseas borrower, putting Japan firmly on the radar as a source of funding for the world’s biggest companies at a time when Japanese investors are crying out for assets that offer positive yields.

Even bankers away from the deal said it had a positive impact for the wider market.

"This deal proved the depth of the yen market, which I think is of great significance," said one banker.

Giant international issues in yen are rare. The September issue for Warren Buffett’s conglomerate was the biggest yen bond from an international issuer since Italy's three-part ¥550bn Eurobond in 1995, far exceeding any more recent international yen deals such as Apple's ¥250bn Global in 2015 and Citigroup's ¥270bn six-trancher in 2007.

Market participants were taken by surprise, especially since Berkshire had never previously issued in the currency.

"This size is astonishing," one banker away from the deal said at the time. "I thought they added extra digits by mistake."

Berkshire’s debut sends a powerful signal that the yen market is now much more accessible to international borrowers than it used to be. By issuing in global format, Berkshire was able to avoid the heavy Japanese documentation burden that has historically kept many overseas issuers away from the Samurai bond market. Global and euroyen bonds have become increasingly popular in recent years among yield-starved Japanese investors, who have been forced to look beyond their home market in search of higher returns.

Notably, Berkshire raised such an enormous amount of money not just in shorter-dated tenors but also at 10 years and beyond, where Japanese demand for international credit is generally very limited.

The deal, led by Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, and Mizuho, consisted of a ¥108.5bn 0.17% five-year note, ¥61bn 0.27% seven-year, ¥146.5bn 0.44% 10-year, ¥19bn 0.787% 15-year, ¥59bn 0.965% 20-year, and ¥36bn 1.108% 30-year. Berkshire raised over ¥100bn at tenors beyond 10 years, an impressive achievement compared to other issuers that printed ultra-long tranches in 2019: Indonesia managed ¥9bn, MetLife ¥61.6bn and Corning ¥37.2bn.

While some put the enormous response down to arbitrage buying from global funds – since Berkshire paid a premium over its US dollar curve, after swaps – Japanese investors also placed massive orders.

The overwhelming demand allowed Berkshire to push the boundaries on price. Market participants had traditionally seen 0.20% as the lowest possible coupon for an international yen bond, but the five-year tranche priced 3bp inside that mark.

Bankers on the deal and away said they had received more enquiries from potential issuers after the Berkshire deal, underlining its significance in opening up the yen market.

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