Japan’s Nippon Steel is weighing the sale of convertible bonds totaling as much as 500 billion yen ($3.2 billion), according to two sources with direct knowledge of the matter. The sources, who declined to be named because the information is not public, said a final decision could come as early as this month.
The company issued a statement saying that nothing has been decided yet. Following the report of the potential issuance, the steelmaker’s shares closed down 2%.
At a headline amount of 500 billion yen, the proposed convertible bond issue would represent the largest transaction of its kind in Japan, based on LSEG data cited by the sources. One source cautioned that the planned issuance amount could be reduced or the strategy reconsidered.
According to the sources, Nippon Steel prefers convertible bonds as a financing route because they avoid an immediate capital increase that would dilute existing shareholders. With domestic interest rates on the rise, the company could structure the issuance as zero-coupon convertible bonds, the sources added. Convertible bonds carry the option to be converted into equity at a predetermined conversion price.
The steelmaker is seeking capital for several specific purposes. These include funding the expansion of its overseas operations - notably in the United States and India - and financing decarbonisation initiatives. The company also requires long-term financing to replace a bridge loan taken out in relation to its acquisition of U.S. Steel last year, which amounted to around 2 trillion yen, the sources said.
Sources described a recent deterioration in Nippon Steel’s business performance, attributing pressure to U.S. steel tariffs introduced by President Donald Trump and to competitive exports from China. Separately, the sources said the Japan Bank for International Cooperation is considering providing roughly 1 trillion yen in loans to Nippon Steel.
JBIC released a statement saying it would not comment on specific cases. The dollar-yen exchange rate used in the reporting was $1 = 156.9100 yen.
Key points
- Nippon Steel is considering up to 500 billion yen of convertible bonds, with a potential decision as soon as this month.
- The proceeds would target overseas expansion (U.S. and India) and decarbonisation, and would help replace a roughly 2 trillion yen bridge loan tied to the U.S. Steel acquisition.
- JBIC is reportedly considering lending about 1 trillion yen; JBIC declined to comment on specific cases.
- The final issuance amount could be reduced or the plan scrapped, creating funding uncertainty for the company - impacting capital markets and the steel sector.
- Business pressures from U.S. tariffs and competition from Chinese exports have already weakened performance, introducing execution and revenue risks for the steelmaker.
- Reliance on long-term funding arrangements, including potential JBIC loans, remains uncertain until formal agreements are announced, affecting liquidity planning.