Japan Tobacco fires up treble
Bonds Issuer shrugs off ESG concerns to make splash in three currenciesBY DANIEL STANTONInvestors put health warnings
to one side and piled into JAPAN
TOBACCO INTERNATIONAL’s three-
currency offering of US dollar,
euro and sterling bonds last
Wednesday.
The world’s third-biggest
cigarette maker raised
US$2.2bn-equivalent and
diversified its funding sources
with debut issues in the euro
and UK market.
The US$1.025bn dollar
portion comprised a US$525m
five-year at Treasuries plus 65bp
and a US$500m 10-year at plus
90bp.
This was inside earlier
guidance of 90bp area and
110bp area, respectively.
Final pricing looked flat to
JT’s curve at five years and only
1bp or 2bp wide at 10 years.
The leads had expected to price
around 15bp back of state-
owned Central Japan Railway,
which like private-sector JT is
rated Aa3/AA– (Moody’s/S&P),
but in the end the differencewas only 10bp.
Books were over US$1.5bn
for the five-year and US$1.4bn
for the 10-year. Asian investors
bought 58% of the 2023s and
Europeans took 42%, while for
the 2028s the split was 80% and
20%.
Asset managers and fund
managers booked a combined
42% of the 2023s, banks
28%, corporate investors 27%
and private banks 3%. Asset
managers and fund managers
took 74% of the 2028s, banks
21%, private banks 4%, and
pension funds 1%.
“We expected to see some
resistance on ESG grounds, but
we did not see too many guys
saying no,” said a source close
to the deal.
The bonds were seen around
3bp tighter in trading on
Thursday, but were tightly held.‘TOBACCO PREMIUM’
The company also priced a
£400m (US$528m) 15-year
sterling benchmark at 110bp
over Gilts, from initial pricethoughts of 130bp–135bp.
On the euro side, it sold a
€550m (US$643m) seven-year
tenor at mid-swaps plus 60bp,
from IPTs of plus 80bp–85bp.
Investors placed €4.7bn-
equivalent of orders for the
€1bn-equivalent trade (euro and
sterling legs combined).
Bond buyers in Europe
said they liked the “tobacco
premium”, saying the deal
looked cheap compared with
other similarly rated names.
Demand of £1.6bn allowed
leads to tighten pricing on the
15-year sterling benchmark by
20bp. Orders dropped off to
£1.3bn after the tightening.
On the euro side, investor
orders of €2.9bn also saw the
pricing sliced by 20bp.
Investors from the UK and
Ireland booked 35% of the euro
notes, Germany and Austria
took 33%, Asia 11%, Nordic-
Baltics 6%, Switzerland 5%,
Benelux 5%, Southern Europe
4% and France 1%. Funds
bought 81% of the bonds, banks
and private banks a combined9%, insurers and pension funds
6% in total, official institutions
and agencies 3%, and corporate
investors 1%.
Funding in euros and sterling
makes sense for the issuer,
which has sizeable cashflows in
both markets, a lead said.
JT owns Benson & Hedges
cigarette-maker Gallaher in the
UK, which it bought in 2007.
It saw the sterling tranche
as a chance to extend its
maturities – matching investor
demand for longer-dated assets
in the UK market, the lead said.
JT is also looking to diversify
its funding base after the past
year saw it go on something of
an M&A spree.
The company is attempting
to shore up its core tobacco
business in the face of
challenges including wider
secular decline, a shrinking
home market and tighter
regulations across the globe.
Acquisition targets have
largely been in emerging
markets: it has bought
companies this year in
Indonesia, the Philippines and
Russia.
The purchases are in line
with wider consolidation in
the sector, following similar
moves by competitors including
British American Tobacco,
which bought US rival Reynolds
American last year.
JT International Financial
Services will issue the Reg S
bonds with a guarantee from
Japan Tobacco. The bonds are
expected to be rated Aa3/AA–
(Moody’s/S&P), in line with the
guarantor.
Citigroup was sole global
coordinator for the dollar
tranches. It was also active
bookrunner with DBS, Deutsche
Bank and Standard Chartered.
Citigroup, Commerzbank,
Credit Agricole, Societe Generale
and UniCredit were active
bookrunners for the euro
transaction, while Citigroup,
Deutsche Bank and JP Morgan
ran the sterling trade. News