One of Warren Buffett’s smartest plays has been to make bond issues in the Japanese yen market and then effectively hedge those proceeds by investing in the shares of the country’s five major trading houses — Mitsubishi, Mitsui, Itochu, Sumitomo and Marubeni.
It is how Berkshire Hathaway has built substantial minority shareholdings in the five companies that remain at the heart of the Japanese economy and business — at little cost to him or his company.
That’s ironic because, of all the companies in the world, Berkshire could easily make the play directly, give it was a round US$480 billion in cash, short-dated US Treasury notes and bonds, and equities.
He did the first issue in 2019 and then emerged with holdings of around 5% in the five Japanese giants in August 2020.
That was described as a passive holding. Now the stake is close to 10% and still passive, and Buffett has said publicly that they are long-term holdings.
On Friday, it was reported that Berkshire and its Japanese advisors were offering seven separate tranches of bonds of up to 30 years tenor.
Earlier this year, Bershire Hathaway said it paid ¥1.6 trillion ($US10.63 billion) for the five stakes, which were valued at ¥2.9 trillion at the end of 2023.
In dollar terms, that translated to unrealised gains of 61% or $8 billion, it said in the February 24 filing.
It had around $US9.8 billion of yen denominated bonds on issue (1.41 trillion yen), according to Bloomberg.
Now Bloomberg and others report that Berkshire has hired BofA Securities Inc and Mizuho Securities Co for a potential benchmark yen-denominated senior unsecured bond offering in the global market.
Berkshire is a regular issuer of yen bonds and last sold such debt in April (around $1.7 billion), in the firm’s largest such deal since it first appeared in the market in 2019.
Since Japan’s change of Prime Minister late last month, with the new man’s big hint to the bank of Japan to maintain an easy monetary policy stance (ie, not lift rates any time soon), Japanese bond yields – both government and private – have fallen.
Yields on Japanese corporate bonds have slid to around 0.92%, from as high as around 1.07% at the end of July, according to Bloomberg. Benchmark 10-year JGB yields have dropped 17.5 basis points to 0.87% during that period.
Cheap money for Berkshire.
