Japan’s record corporate bond issuance will likely slow down, but a boom in environmentally friendly debt could limit the downside.

Companies have sold ¥13 trillion worth of bonds this business year, which ends March 31, already the most ever with three months still remaining in the period, Bloomberg-compiled data show.

That red-hot pace of issuance probably will not be repeated in fiscal 2020 because borrowing costs may rise, while fewer notes will mature during the period, reducing corporate demand to sell bonds, according to underwriters.

The bond sale frenzy has increased the cash Japan Inc. holds even more to a record ¥513.2 trillion. While the plentiful funding has not translated to a major rise in capital spending, companies may be using the cash more to boost shareholder returns including stock buybacks, according to bankers.

Rising interest in green notes may also help Japan catch up with other advanced economies in sales of the debt to finance environmental projects.

“There are many companies that are cautious about making big investments on capital, but it’s positive that they are diversifying their use of proceeds,” said Hisashi Kawada, executive director of debt capital markets at Nomura Securities Co.

Issuers including electronic component maker Nidec Corp., developer Tokyo Tatemono Co. and contractor Shimizu Corp. sold green notes last year, helping boost offerings to the equivalent of $6.6 billion, a record, according to data compiled by Bloomberg. That pushed Japan into the top 10 for green bond issuance for the first time.

Sales of the notes in Japan may double in 2020 as addressing climate change becomes a bigger topic, Nomura’s Kawada said.

One type of environmentally friendly bonds that may emerge in Japan this year is transition debt, according to Naoki Shindo, managing director and head of debt syndicate at SMBC Nikko Securities Inc.

Those securities help companies such as utilities finance projects aimed at switching to cleaner ways of doing business. Issuers in Europe have begun selling such debt.

“There are still companies which are engaged in brown businesses, but we expect those firms to make a transition to greener business models,” Shindo said.

He expects total Japanese corporate bond sales to be around ¥11 trillion to ¥12 trillion next fiscal year.

Shindo said that new debt types like Italian utility Enel SpA’s sustainability-linked bonds issued last year may start to take off in Japan as well. Interest costs for the notes are partly tied to the company’s success in hitting renewable energy targets.

The primary market may also move to increase transparency in the book-building process, with more issuers using the so-called pot system to sell bonds, underwriters say. The arrangement, prevalent in the U.S. and Europe, has syndicate banks share information among themselves and with issuers on bond buyers.

A record 15 Japanese issuers have used the pot system in bond sales this fiscal year, including the Japan International Cooperation Agency, the first government-backed organization to sell notes that way, according to Bloomberg-compiled data.

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