This Profitable eCommerce SoftBank Business Plans Big Bond Sale

Billionaire Masayoshi Son appears to have lost his midas touch of late, but one part of his technology empire still turning a profit, even in the Covid-19 era, is now planning a big bond.

Z Holdings Corp., formerly known as Yahoo Japan, is planning to sell about 200 billion yen ($1.86 billion) of yen-denominated notes in June, according to people familiar with the matter, who asked not to be identified. Son was one of the earliest backers of Yahoo! in the 1990s and then teamed up with the dot-com-era darling to launch the portal in Japan, an asset that wound up being much more valuable than its parent.

Unlike Son’s SoftBank Group Corp., which recently posted a record loss from newer investments, Z Holdings reported higher profits, as the pandemic boosted earnings at its online shopping business, while people stayed home. Son has been seeking to build Z Holdings into an internet giant to battle global rivals, and plans to combine the business later this year in a complex deal with Line Corp., Japan’s leading messaging service.

Z Holdings, a unit of SoftBank’s domestic telecom business is considering to sell 1.5-, 3-, 5-, 7- and ten-year notes, and has hired underwriters for the deal, according to the people familiar. It is set be the biggest offering in the current fiscal year started April 1, if it prices at 200 billion yen.

A spokeswoman for Z Holdings said nothing had been decided at this point on any issuance.

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Treasuries Move Modestly Higher Amid Concerns About U.S.-China Tensions

After ending the previous session nearly unchanged, treasuries moved modestly higher during the trading day on Friday.

Bond prices gave back some ground after an initial jump but managed to remain in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2 basis points to 0.657 percent.

The uptick by treasuries came amid concerns about rising tensions between the U.S. and China, as Beijing moved to strengthen control over Hong Kong with new security laws.

U.S. President Donald Trump warned that Washington would react “very strongly” if China follows through on its plans.

The latest developments come after the Senate passed a bill on Wednesday that would potentially delist Chinese stocks from U.S. exchanges.

In other China-related news, the Chinese government abandoned setting an economic growth target for the first time amid uncertainties posed by the coronavirus pandemic.

Trading activity was relatively subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.

The upcoming Memorial Day holiday also contributed to the light trading, with some traders looking to get a head start on the long weekend.

Following the holiday weekend, next week’s trading may be impacted by reaction to reports on new home sales, consumer confidence, durable goods orders, pending home sales, and personal income and spending.

Bond traders are also likely to keep an eye on the results of the Treasury Department’s auctions of two-year, five-year, and seven-year notes.

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Thai Airways Steps Closer to Restructuring in Bankruptcy Court

Flag carrier Thai Airways International Pcl is a step closer to restructuring via a bankruptcy court after a key government panel backed the plan, which is due for consideration by the Cabinet on Tuesday.

A committee that oversees policies for state-run enterprises agreed that the airline should seek such a rehabilitation, government spokeswoman Narumon Pinyosinwat told reporters in Bangkok on Monday.

Governments worldwide have devoted more than $85 billion to propping up airlines after the coronavirus pandemic wiped out travel demand and grounded fleets. Thailand’s borders are restricted under a state of emergency through May and most inbound international flights are banned until the end of June, though some domestic flights have restarted.

Thai Airways, majority owned by the Finance Ministry, has outstanding debt of about 92 billion baht ($2.9 billion), of which approximately 78% is owed to bond investors, according to data compiled by Bloomberg.

Tris Rating Co., which is partly owned by S&P Global Ratings, said in a statement that the fact officials are considering filing for bankruptcy restructuring “has eroded our confidence that necessary actions from the government will be taken to enable THAI to meet all of its obligations in a timely manner.”

Tris Rating has downgraded its rating on Thai Airways and the carrier’s senior unsecured bonds to BBB from A.

“Holders of Thai Airways’ bonds are watching closely for details of its rehabilitation plan,” Thiti Tantikulanan, senior executive vice president of Kasikornbank Pcl, said at a seminar. “The impact on the overall bond market will be limited because Thai Air bonds have been mostly sold to a limited group of investors.”

Thai Airways has posted annual losses almost every year since the start of 2013. The flag carrier was under pressure to turn around its performance even before the Covid-19 outbreak.

Shares in the carrier slid as much as 13% on Monday to the lowest level in more than a month. The stock has tumbled more than 90% from a peak in 1999.

— With assistance by Lee J Miller

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An Ex-Goldman Bond Trader’s Quiet Rise to Managing $1.6 Trillion

Before he landed the top investing job at the world’s biggest pension fund this month, Eiji Ueda spent nearly three decades at Goldman Sachs Group Inc. avoiding the public eye.

Now the 52-year-old former bond trader is stepping into one of the biggest spotlights in global finance. As chief investment officer of Japan’s Government Pension Investment Fund, he’ll be responsible for $1.6 trillion of retirement assets at a time of extreme market volatility and rising public angst about the future.

Interviews with people who know Ueda paint a picture of a steady hand, steeped in knowledge of the bond market, who has both international experience and the capacity to manage a conservative Japanese organization.

While his predecessor Hiromichi Mizuno oversaw GPIF’s biggest-ever strategic overhaul and was at times outspoken, Ueda is seen as more likely to take a methodical approach.

“Mizuno created a completely new GPIF, and fought many political battles to upgrade it,” said Jesper Koll, a longtime observer of Japanese markets who has known Ueda for almost two decades. “Where Mizuno was ‘kaikaku,’ real reform, Ueda is the undisputed master of ‘kaizen,’ seemingly small but relentless and highly effective improvements.”

Ueda, who GPIF declined to make available for an interview, kept a low profile during his time at Goldman, with just a handful of mentions in the press. He began his almost 28-year career at the bank in 1991, just as Japan’s bubble economy was bursting. The University of Tokyo graduate started out working in government bond trading in the Japanese capital, before doing a stint at the Treasuries desk in New York.

Regional Co-Head

He steadily climbed the ranks, becoming a managing director in 2000 and a partner in 2002. In 2012, he was appointed co-head of Asia Pacific Securities, a position he held until he left the bank.

One of Ueda’s early bosses at Goldman was Oki Matsumoto, the founder of Japanese online brokerage Monex Group Inc. He recalled how, as a young trader, Ueda adapted to the high-pressure world of the brokerage’s Treasuries desk in New York.

“He was sent to New York when he didn’t even speak English that well, to the heart of Goldman’s trading floor,” Matsumoto said in an interview. “But he didn’t run away. He took it on and accomplished it and earned respect along the way.”

Matsumoto also said Ueda knows his limitations and has the personality traits to manage a team. “He doesn’t just push people to do things his way, but listens carefully to others,” he said.

Peers also point to Ueda’s background in bonds, which made up about 44% of GPIF’s assets at the end of December. Ueda is a respected insider in the world of Japanese government debt, according to Koll.

At the same time, Ueda brings experience of foreign debt markets at a time when GPIF is boosting its holdings. In March, the fund said it would increase its target allocation for overseas bonds by 10 percentage points to 25%, while cutting its weighting of Japanese debt as much of it trades with negative yields. For Travis Lundy, an analyst who publishes at SmartKarma, Ueda’s expertise will be thinking about risk and liquidity as the fund reshapes its bond portfolio.

Still, Ueda’s skillset may be a bit narrow for managing GPIF’s investments across all asset classes, according to Monex’s Matsumoto. His background in trading is “a different world compared to pension fund management,” he said. But what Ueda lacks in experience, he makes up for in willingness to listen to others, he said.

One area where Ueda will have to adapt is equities, which make up more than half the fund’s assets after GPIF revamped its portfolio in 2014, boosting stocks and cutting bonds. While most experts agreed the fund needed to make riskier investments to pay for people’s retirements, the public criticism in Japan when shares fall has been harsh. An index of global stocks plunged 22% in the first quarter of 2020 as the coronavirus hit.

Risk Management

“It feels like they’ve picked a person who’s very thorough about risk management to lead the fund,” said Hiroyuki Kubota, a financial analyst who runs a blog about the JGB market. They chose someone who is able to live through big market downturns, he said.

Investors will also be watching whether Ueda takes a different approach from his predecessor, Mizuno, who oversaw the fund’s expansion into equities and was a proponent of environmental, social and governance investing. Mizuno made international headlines by blasting short sellers for “short-termism” in an interview with the Financial Times last year. In December, GPIF announced it would stop lending overseas stocks.

But there is disagreement on what that approach should be, and little room to veer too far from GPIF’s prescribed direction. Kubota, the bonds commentator, says the fund should cut back on stocks because losses on them are unacceptable. “Maybe he will lead GPIF in a new direction, instead of absorbing the tactics of his predecessor,” he said. “I’d like to pin my hopes on that.”

Lundy, on the other hand, says the fund is probably underweight equities after the March sell-off and should buy more shares.

What direction Ueda will take remains to be seen, but the people who know him expect he’ll steer a steadfast course.

“From here, GPIF needs a steady hand,” said Koll. “And that’s exactly what Ueda brings to the table.”

— With assistance by Taiga Uranaka, Takako Taniguchi, and Chikafumi Hodo

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