The papers, issued through the firm’s Malaysian subsidiary, have an aggregate nominal value of up to M$400 million (US$114 million) and are guaranteed through a syndication arranged by Mizuho corporate bank.
"We are looking to raise funds at a rate of 4% to 4.5% in three to five years," said Kuroda Naruhito, managing director, at the signing ceremony for the agreement. "The company has ongoing investments that require funding, and looking at the size of our receivables and borrowings, it’s only natural to diversify into the debt capital market."
Many observers have commented of late that the continuing reluctance of Japanese investors to commit their cash to the domestic market might be slowing the country’s economic recovery; it might also be encouraging issuers to broaden their horizons. In addition to Aeon’s pioneering deal, the Japanese government-linked Japan Bank for International Cooperation is preparing a sukuk mandate to be issued in Malaysia. The deal, reportedly due for launch close to the Golden Week holiday in May, will look to raise up to the equivalent of $300 million, according to Tadashi Maeda, director-general of JBIC.
JBIC has assembled a board of Shariah scholars to explore the possibility of Islamic financing, implying that its first deal, if successful, could be followed by further issuance.
Aeon is regarded as a strong credit and its deal has secured the highest standalone short-term investment grade rating of P1 for its commercial paper and an AAA rating for the MTNs from Rating Agency Malaysia thanks to the Mizuho guarantee. Naruhito says that the structure affords Aeon credit the flexibility to issue debt at different tenors and in Islamic or conventional form in order to match the firm’s short-term funding needs – it has both Islamic and non-Islamic receivables – but the deal’s comparatively small size suggests that the issue might also be testing the market. The agreement allows for up to M$200 million of Islamic commercial paper and MTNs, and the same amount of conventional notes, but so far only a small portion of that has been offered to investors.
On January 31 Aeon tapped the issue for M$20 million of three-year and M$40 million of five-year Islamic notes, as well as M$20 million of three-year conventional MTNs. If investors are not put off by the possibility that such small tranches might suffer from limited liquidity, other Japanese firms looking to explore new markets could well copy Aeon’s bold work.