Berkshire completes the issuance of 210.1 billion yen in bonds, has ammunition ready to increase holdings in the five major trading companies?

Berkshire Hathaway successfully issued yen bonds again, raising 210.1 billion yen at a lower cost than before. This move is closely interpreted by the market as potentially having prepared "ammunition" for increasing its stake in Japan's five major trading companies.

According to reports, the investment giant led by Warren Buffett completed the issuance of these yen bonds this Friday. This transaction not only far exceeded the scale of the last bond issuance in April this year but also saw a significant narrowing of the issuance spread, highlighting the strong confidence in Berkshire's creditworthiness amid a surge of global investors entering the Japanese market.

This bond issuance comes at a critical juncture. As interest rates rise, investor interest in corporate bonds has reignited, and Berkshire, as the largest overseas issuer in the yen bond market, is closely watched. Market sentiment has noticeably improved since April, when U.S. trade tensions had caused market turmoil.

The latest financing action has reignited speculation about how Berkshire will use these funds. The most common view is that these proceeds may be used to increase its stake in Japan's five major trading companies. Buffett himself has expressed admiration for these companies multiple times in his letters to shareholders.

Strong Market Demand! Investors Optimistic About Yen Corporate Bond Value

This issuance consists of four different maturities of bonds, ranging from three to fifteen years, all of which are senior unsecured bonds registered with the U.S. Securities and Exchange Commission (SEC). The final issuance total of 210.1 billion yen (approximately $1.4 billion) significantly exceeds the 9 billion yen scale from April this year. At that time, the heightened U.S. tariff threats exacerbated market volatility, making the April issuance the smallest since Berkshire first entered the market in 2019.

More importantly, the cost of this issuance has significantly decreased. The pricing spread of the largest three-year bonds was 48 basis points above the TONA benchmark yen swap mid-price, far lower than the previous issuance of 70 basis points. Additionally, the issuance spread for the five-year bonds was about 64 basis points, also lower than the previous issuance level.

Takashi Fujiwara, Chief Fund Manager at Resona Asset Management Co., stated that investor demand for corporate bonds has been recovering. He added, Berkshire is a popular issuer, with a "solid credit rating, and foreign investors are also active buyers in the secondary market."

Fujiwara pointed out that rising interest rates have rekindled investor interest in corporate bonds, stating, "Investors see better value, and yen-denominated bonds are within their investment scope." This trend is also supported by other market activities, including foreign issuers such as Renault, Slovenia, and Shinhan Bank, which have all issued Samurai bonds this month, although investor interest has mainly focused on shorter-term bonds in the rising interest rate environment.

Analysts say that Buffett's yen financing indicates that he has locked in investment opportunities in Japan, and this move is also seen as an important barometer of sentiment in the yen credit market

Market Focus on Increasing Holdings in Trading Companies

Since its debut six years ago, this company headquartered in Omaha, Nebraska has become a regular issuer of yen bonds and has since become the largest foreign issuer of yen notes. Therefore, every financing by Berkshire in the yen market draws investors' attention to its investment strategy in Japan.

According to a previous article, as early as the 6th of this month, Berkshire Hathaway had hired banks to arrange the issuance of bonds. The market speculates that the proceeds from this bond issuance may be used to increase its holdings in Japan's five major trading companies — Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co., and Sumitomo Corporation.

Since Buffett first disclosed his holdings in Japan's five major trading companies in August 2020, the stock prices of these companies have more than doubled. Buffett revealed in this year's letter to shareholders that Berkshire began building its position in 2019.

Although Berkshire had agreed to keep its stake in each company below 10%, as the holdings approach this limit, Buffett added that these five companies have agreed to "moderately relax" this restriction. Buffett wrote in the letter:

"Over time, you may see Berkshire's stake in these five companies increase."