ID :
15635
Tue, 08/12/2008 - 14:46
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Shortlink :
http://m.oananews.org//node/15635
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Prolonged Slump Foreseen for Low-Grade Japan Corporate Bonds
Tokyo, Aug 12 (Jiji Press)- Recent bankruptcies of two midsize Japanese real estate developers have splashed cold water on the nation's corporate bond market, with investors increasingly shunning low-grade bonds issued by startup realtors.
Investor demand for realtors' bonds with low credit ratings may remain sluggish given the dimming outlook for the Japanese real estate market, analysts point out.
The two real estate developers, Suruga Corp. and Zephyr Co. <8882>, went under in June and July, respectively. As a result, the two companies' outstanding bonds, each worth about 20 billion yen, effectively became irredeemable, marking the first default of publicly issued corporate bonds in Japan since supermarket operator Mycal Corp. defaulted on its bonds in 2001.
Suruga ran into financial difficulties following the revelation in March that it asked people not qualified as lawyers to negotiate the eviction of tenants at a Tokyo building in violation of the bar act. Meanwhile, Zephyr bore the brunt of the stagnant real estate market.
Suruga was delisted from the Tokyo Stock Exchange late last month while Zephyr will be ousted from the TSE later this month.
The two companies' failures have had a considerable psychological impact on the bond market because investors are concerned about the possibility that similar financial troubles may hit other real estate developers, according to analysts.
Reflecting the deteriorating investor sentiment, market prices of corporate bonds rated at BBB by the Japan Credit Rating Agency have fallen sharply with their yields surging far above the yields on Japanese government bonds.
The yield spreads widened to 300 basis points on average after Suruga defaulted on its bonds, far larger than 100 points or less before the revelation of the company's unlawful practice, according to brokerage firms.
Since then, the spreads have remained at lofty levels, reaching 1,000 points in some cases.
Investors are worried that more defaults may come, Yutaka Ban, chief credit analyst at Shinko Securities Co. <8606>, said, adding that selling pressure is very strong on the corporate bond market.
A source within a major condominium developer said that the tough business environment surrounding the industry is likely to continue because of rising prices of construction materials and slack condominium sales.
A credit analyst said that the market for realtors' bonds will remain in the doldrums unless Japan's economic fundamentals improve dramatically.
Investor demand for realtors' bonds with low credit ratings may remain sluggish given the dimming outlook for the Japanese real estate market, analysts point out.
The two real estate developers, Suruga Corp. and Zephyr Co. <8882>, went under in June and July, respectively. As a result, the two companies' outstanding bonds, each worth about 20 billion yen, effectively became irredeemable, marking the first default of publicly issued corporate bonds in Japan since supermarket operator Mycal Corp. defaulted on its bonds in 2001.
Suruga ran into financial difficulties following the revelation in March that it asked people not qualified as lawyers to negotiate the eviction of tenants at a Tokyo building in violation of the bar act. Meanwhile, Zephyr bore the brunt of the stagnant real estate market.
Suruga was delisted from the Tokyo Stock Exchange late last month while Zephyr will be ousted from the TSE later this month.
The two companies' failures have had a considerable psychological impact on the bond market because investors are concerned about the possibility that similar financial troubles may hit other real estate developers, according to analysts.
Reflecting the deteriorating investor sentiment, market prices of corporate bonds rated at BBB by the Japan Credit Rating Agency have fallen sharply with their yields surging far above the yields on Japanese government bonds.
The yield spreads widened to 300 basis points on average after Suruga defaulted on its bonds, far larger than 100 points or less before the revelation of the company's unlawful practice, according to brokerage firms.
Since then, the spreads have remained at lofty levels, reaching 1,000 points in some cases.
Investors are worried that more defaults may come, Yutaka Ban, chief credit analyst at Shinko Securities Co. <8606>, said, adding that selling pressure is very strong on the corporate bond market.
A source within a major condominium developer said that the tough business environment surrounding the industry is likely to continue because of rising prices of construction materials and slack condominium sales.
A credit analyst said that the market for realtors' bonds will remain in the doldrums unless Japan's economic fundamentals improve dramatically.
