* Coffee chain brings sustainability bonds to Japan in
By Taka Okomoto
TOKYO, March 13 (IFR) - Starbucks answered Japan's growing
demand for socially responsible investing (SRI) last week when
it chose to launch the country's first sustainability notes in
its maiden international bond offering.
The US coffee giant priced 85 billion yen ($736 million)
Global 0.372 percent seven-year senior notes at 20bp over yen
mid-swaps, again choosing Tokyo for its initial foray outside
North America, just as it had done when it opened its first
overseas coffee shop in the Ginza district of the Japanese
capital in 1996.
Investors were drawn to the high name recognition of the
group, which has now 1,245 stores across the country, and the
issue size could have been even larger.
"Books built up (to) over 100 billion yen, but the size was
capped at 85 billion yen," said one of the leads on the issue.
Marketing started at 20bp–25bp over mid-swaps on March 7,
and the range was progressively tightened to 20bp–23bp the
following day and, eventually, 20bp on the day before pricing.
Starbucks (A2/A/A) chose to issue Global rather than Samurai
bonds as the documentation is much easier for the former. "It
would take two months of legal work (for a Samurai) and they
would need to provide disclosure in Japanese," said another
However, the bonds were sold exclusively in Japan, split
between Tokyo-based institutions, including life insurers, and
regional investors. The ratio was about 90-10 in volume terms
and 50-50 in account terms.
The spread translated after swaps to a level higher than the
issuer's US dollar curve, the leads said, pointing out that
Starbucks trades very tight in US dollars. As such, the guidance
range was based on the coupons of other high-quality US issuers
that had done deals in Japan and on domestic yen transactions.
Sources close to the deal also hinted that Starbucks was
likely to keep the proceeds in Japan to meet funding needs there
rather than swap them into dollars.
The seven-year tenor was selected based on the issuer's
maturity profile and to invite a wider range of investors.
The bonds have two new features – a par call and the
sustainability angle. A par call is common on US deals, but this
was a first for yen deals. However, one of the leads said it was
not a big hurdle because some Japanese investors had already
bought US bonds with the feature.
Starbucks created documents in both English and Japanese to
introduce the sustainability bond framework and lay out details
pertaining to the use of proceeds, the process to select
projects, the management of proceeds and reporting.
Opinions from Sustainalytics, which helped to formulate the
framework in alignment with the Green Bond Principles 2016 and
the Social Bond Guidance 2016, were also added in the documents.
Starbucks says the bonds "will focus on enhancing its
sustainability programmes around coffee supply chain
management". Some of the proceeds, for instance, will be used to
purchase coffee from sustainable plantations.
The company issued its first corporate sustainability bonds
last May with a domestic $500 million 10-year transaction that
was also the first issue of such bonds in the US.
The environmental, social and governance (ESG) focus helped
to attract investors to the yen issue, even some who usually
seek longer tenors, such as life insurers. "Some of the insurers
say 'I would rather have 10 years, but, since it is
sustainability bonds, even though it is seven years I can use
the segregated money put aside'," said one of the leads.
ESG instruments are becoming popular with Japanese
investors. French power utility Electricite de France
issued the first Green bonds in the country less than two months
"Foreign issuers are more responsive than Japanese issuers
to the demand for those products", said Hiroaki Hayashi, general
manager of the investment department at Fukokushinrai Life.
"For Japanese issuers, it is a bit tortuous to issue such
bonds. They don't need to issue them at all, because they can
borrow money as much as they like, as Japanese investors have
lots of funds," Hayashi said. "As interest rates are low here
and bonds with that sort of concept can attract demand, foreign
issuers are responding more quickly than Japanese issuers to the
demand among Japanese investors."
Hayashi also emphasised the advantage of buying ESG
products. "I believe, from my experience, it is actually
companies that contribute to society that give high returns in
the long run," he said.
"It is a good thing that people start to realise that.
Demand for such bonds is definitely growing. The fact that
Starbucks drew such a large response verifies that."
Morgan Stanley International and MUFG Securities EMEA were
underwriters. Mitsubishi UFJ Morgan Stanley and Morgan Stanley
MUFG sold the bonds to domestic investors.
(Reporting by Takahiro Okamoto; editing by Daniel Stanton and