Prologis showcases yen appeal
Bonds Japanese debut extends run of Global yen bonds from US issuersBY TAKAHIRO OKAMOTOUS logistics real estate
company PROLOGIS highlighted
the growing appeal of Global
yen debt last week with a long-
term fundraising of ¥55.1bn
(US$494m) to hedge currency
risk for its Japanese assets.
Funding vehicle Prologis Yen
Finance issued a four-tranche
Global comprising ¥5bn 0.652%
seven-year notes, ¥40bn 0.972%
10-year notes, ¥5.1bn 1.077%
12-year notes and ¥5bn 1.470%
20-year notes. The spreads
over yen mid-swaps were
45bp, 65bp, 67bp, and 77bp,
respectively.
Although the US company
has had a presence in Japan
since 1999, it was its debut in
the yen bond market.
The offering also extends
a recent run of Global yen
issuance from US companies,
following similar deals fromStarbucks and Corning (twice)
in the past 18 months.
Traditionally, foreign issuers
in need of a large amount
of yen have preferred the
Samurai market. However,
Samurai documentation
requirements have been
a big hurdle, whereas
documentation for SEC-
registered Global yen bonds
is much easier and quicker. In
the past, Japanese investors
were reluctant to buy these
bonds, but the Starbucks
and Corning offerings have
broadened the market and
nudged Prologis to choose the
same format.
The issuer was initially
planning to sell several long-
term tranches, but only the
10-year piece was confirmed
when marketing officially
started on Monday. Initial
price guidance was 60bp–65bp
and the tranche eventuallypriced at the wider end. The
12-year tranche was added
for investors able to go a bit
longer and looking for absolute
yield levels of 1%.
A banker on the deal said it
was noteworthy that Prologis
drew such decent demand
in ultra long-end tenors in a
debut deal.
Participation mainly came
from Tokyo-based investors.
The seven-year tranche drew
demand from lifers and trust
banks; the 10-year from lifers,
big domestic banks, asset
managers, central public funds
and foreigners; the 12-year
from lifers and shinkin banks;
and the 20-year from asset
managers.
Prologis guarantees the
yen deal, which comes
after the company raised
US$700m from a dual-tranche
offering of 10 and 30-year
bonds in June and PrologisEuro Finance raised €700m
(US$819m) from long 10-year
bonds in July.
According to a filing, the
issuer intends to lend or
distribute the proceeds from
the yen offering to Prologis.
This will partially fund the
redemption of notes issued by
DCT Industrial, which Prologis
acquired in August. Any
remaining net proceeds will
be used for general corporate
purposes.
Prologis had US$5.281bn
of operating properties and
a US$911m development
portfolio in Japan as of the
second quarter of 2018.
Prologis does not have any
concrete plan for future global
yen issuance at the moment,
but will flexibly consider such
an option depending on its
funding needs and market
conditions.
SMBC Nikko, Mizuho, and
Morgan Stanley were the
bookrunners on the deal,
which is rated A+ by R&I and
has expected ratings of A3/A–
(Moody’s/S&P). IL&FS downgrade sparks panic
Bonds Icra, Care Ratings slash ratings after liquidity crunchBY KRISHNA MERCHANTThe downgrade of
INFRASTRUCTURE LEASING & FINANCIAL
SERVICES (IL&FS), part of a group
credited with building the
longest tunnel in India, sent
ripples through the credit
market last week after rating
agencies raised red flags over
its ability to repay debt.
Icra and Care Ratings both
downgraded various IL&FS
instruments from AA+ to
BB over the September 8-
weekend, citing liquidity
constraints at the group level
and a delayed capital injection
from existing shareholders.
The moves came after the
IL&FS board failed to reach
an agreement on a credit line
from State Bank of India and
state-owned Life Insurance
Corporation on September 7.Both SBI and LIC are investors
in unlisted IL&FS, which
made the company’s liquidity
woes come as even more of a
surprise for investors.
The yield on IL&FS’s
commercial paper maturing
on October 25 rocketed to
8.71% on September 5, from
7.46% a day earlier, when it
announced it was blocked from
issuing more CP. Investors had
been banking on the company
obtaining an agreement over
the weekend from SBI and
LIC to inject more funds, and
rating agencies responded once
it emerged no agreement had
been reached.
IL&FS’s October 25 CP was
quoted at a yield of 8.96% on
Thursday, while its Rmb1bn
(US$146m) Dim Sum bonds due
January 2021 were quoted at a
yield of almost 34% on Thursday,surging from 8.8% on August 6.
The downgrades caused panic
in the Indian markets last week
as mutual funds which were
holding bonds and commercial
paper issued by IL&FS andgroup companies took a
hit. Shares of IL&FS group
companies plunged around
13% on September 10 after the
ratings were cut. The averagenet asset value of Indian funds
fell by 0.9%–2.5% on Monday,
according to a rating analyst.
The rating downgrades added
to the negative sentiment
prevailing in India’s debt
market, as yields on short-term
commercial paper and bonds
have been under pressure
from rupee weakness and
tight liquidity. The yield on six-
month commercial paper rose
by 30bp to 8.5% by Wednesday
and five-year corporate bonds
were hovering at around 8.85%,
according to Thomson Reuters
data.
“Investors have become
cautious following the IL&FS
downgrade,” said a DCM
banker.DEBT PILE
There are concerns whether
the IL&FS Group, which isNews
“Even if IL&FS is able
to raise funds now and
tide over the liquidity
situation, the question
is whether they will be
able to remain solvent
in the long term.”