Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAOvernight sensation
J
ust a few years ago, the idea of a US$4.3bn overnight
equity offering would have been unthinkable in Japan’s
capital markets. Last week’s mega block trade in Yahoo
Japan is a big step forward.
Altaba’s Yahoo sell-down is one of Japan’s biggest
secondary offerings of all time, and by far the largest to be
done in one day.
It also came at a tidy 4.6% discount and achieved a rare
feat for a secondary follow-on: shares in both the issuer and
the vendor rose in the days after the deal.
That contrasts to the traditional Japanese follow-on,
which is almost always priced at a 3% discount but only
after the stock has had two weeks to adjust to the news.
In the case of Yakult Honsha earlier this year, for
example, Danone’s US$1.3bn block sale priced 11.3% below
the undisturbed stock price. It’s not hard to imagine that an
overnight bookbuild would have come inside that.
Japanese bankers will no doubt point to many reasons
that make Altaba/Yahoo a one-off, and it is true that a
domestic seller may be unable to consider an accelerated
bookbuild that relies heavily on overseas institutions. The
Japanese government, for instance, is unlikely to shun
LOCALûRETAILûINVESTORSûWHENûITûSELLSûITSûTHIRDûANDûlNALûPIECEû
of Japan Post – even if removing the overhang as quickly as
POSSIBLEûWOULDûBENElTûEXISTINGûSHAREHOLDERS
But a record overnight trade sends an important signal
that the Japanese market can support deals of this kind. It
also builds on a trend that has already seen last year set a
record for block trades, with local sales of Advantest and
Sumco joining private equity exits in Skylark and Seibu
Holdings among the biggest deals of the year.
Coupled with corporate governance improvements,
stewardship reforms and an undeniable drive to boost
returns, the growth of overnight bookbuilds suggests
the equity capital markets will only play a bigger role in
Japanese dealmaking in the future.Green converters
I
f bonds and loans can be considered Green, surely the
same should apply to a convertible bond. Getting issuers
and investors to buy into that concept, however, will not
be easy.
Japanese timber company Sumitomo Forestry can claim
TOûBEûTHEûWORLDSûlRSTûISSUERûOFûAû'REENû#" ûHAVINGûPRINTEDûAû
¥10bn (US$90m) deal last week.
"UTûWHILEûGREENûlNANCEûPROPONENTSûCANûCELEBRATEûTHEû
innovation, the lack of a dedicated investor base will hold
back copycats.
The equity-linked market is a niche product, so it is
UNDERSTANDABLEûTHATûEFFORTSûTOûTRANSITIONûlNANCINGûTOWARDSû
a low-carbon future have so far focused on the multi-trillion-
dollar bond market. Equally, Green funds are chasing the
bigger picture. Even those with a mandate that allows them
to buy CBs are unlikely to spend time on a complex product
that so far offers no investment opportunities.
There is another limiting factor, too: the equity option.
In a straight bond issue or syndicated loan, the use of
PROCEEDSûCANûBEûCLEARLYûDElNEDûANDûCLEARLYûMONITOREDû4HATû
ALLOWSû'REENûBONDûFUNDSûTOûlNANCEûAûPROPERTYûDEVELOPERSû
LATESTûENERGY
EFlCIENTûBUILDINGûORûSUPPORTûANûOILûCOMPANYSû
investment into renewable energy, for example.
In a convertible or exchangeable bond, Green investors
will need to be comfortable holding the underlying equity,
not just the debt. To justify a Green label, that means
the entire company would have to qualify as low-carbon
or environmentally responsible. That logic shrinks the
potential issuer base to a fraction of the already small CB
universe.
Without dedicated investors, CB issuers are also unlikely
TOûSEEûANYûlNANCIALûBENElTûFROMûGOINGûGREENû!NDûTHEû
investor base won’t develop while the potential issuer
community remains so small.
At this point, a Green CB offers little more than the
marketing value of the environmental assessment. This neat
experiment falls between the cracks.A record overnight trade
sends an important signal
that the Japanese market can
support deals of this kind.