Local entities turn to ratings to sell bonds

BY YUKIO HASHIMOTO, THE ASAHI SHIMBUN

Local governments, hoping to attract Japanese and foreign investors, are increasingly acquiring ratings for their bonds even though the process is both costly and time-consuming.

Of the 43 prefectures and major cities that issue bonds to general investors, 14 have obtained ratings from agencies such as Standard & Poor's and Moody's, according to Rating and Investment Information Inc.

The number has risen since 2006 when deregulation allowed local governments to issue bonds freely, in principle, and set coupon rates individually.

Local governments expect that third-party ratings will help convince investors of their debt-servicing capabilities and allow them to sell bonds at low coupon rates.

They have acquired relatively high ratings apparently on expectations that the central government would help repay their debts in case of a fiscal crisis.

Last week, the city of Osaka received an AA+ rating for its bonds from Japan Credit Rating Agency. In March, Chiba city obtained an A+ rating from Standard & Poor's.

The Tokyo metropolitan government has acquired ratings from Moody's Investors Service and Standard & Poor's.

"Outside Japan, many cities get ratings from more than one agency. We thought we ought to match them," said an official at the metropolitan government's Finance Bureau.

The metropolitan bonds were given Moody's Aa1 rating in February 2007 and Standard & Poor's AA rating in March.

More local governments are expected to follow suit. The city of Sakai, Osaka Prefecture, is planning to acquire a rating by the end of March 2009.

Differences in coupon rates are limited, and the percentage of non-Japanese investors is estimated to be about 1 percent. Still, local governments expect more foreign investors because interest earnings on local government bonds held by overseas residents became tax-exempt from this year.

The city of Yokohama, which became the first local government to acquire a rating in October 2006, has created an English-language section for its bonds on the municipal website.(IHT/Asahi: May 13,2008)