Bloomberg TOKYO (Bloomberg) — A shady practice in Japan’s corporate bond market may be on the rise again as falling yields make investors pickier, leading to more bankers saying that debt sales were successful when they actually weren’t.
Underwriters failed to fully sell at least 20 company-note issues out of 91 in July, or 22 percent of the total, according to information compiled by Bloomberg based on more than 100 interviews with investors, underwriters and issuers. While the ratio has only increased for two straight months, it’s more than tripled from the low of 6 percent in May.
Japanese financial regulators started to probe underwriting practices in the nation’s corporate bond market last year after Bloomberg reported that bankers often falsely say debt deals sold out, to cover up a lack of demand. The practice appeared to decrease from the start of the year. But unsold notes seem to be rebounding as an expansion of monetary stimulus globally sparks a jump in Japanese bond sales, making it harder for underwriters to ensure that there’s enough demand for each deal.
“This phenomena is evidence that communication between investors and issuers doesn’t always go well,” said Takahiro Oashi, a senior fund manager at Asahi Life Asset Management in Tokyo. He said unsold bonds are a deep-rooted problem in Japan and that investors are often left in the dark about them.
In July alone, bonds of companies including Nippon Life Insurance Co., Credit Saison Co., Seiko Epson Corp. and Chugoku Electric Power Co. went unsold, according to people familiar with the matter who asked not to be identified discussing a sensitive topic. Speech