A Toyota Prius during the 2023 New York International Auto Show in New York on April 6, 2023.
For the first time in two years, Toyota Motor Corp. sold socially conscious debt denominated in dollars as the Japanese carmaker looks to boost its production of electric vehicles (EVs) to compete with Tesla Inc.
The automaker priced $1.5 billion of sustainability bonds in three parts, according to a person with knowledge of the matter. The longest portion of the offering, a 10-year security, yields 1.08 percentage points above Treasuries, after initial discussions of around 1.35 percentage points, said the person, who asked not to be identified as the details are private.
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Book orders were said to be over $6 billion as of 11am yesterday, said the person. It's the first time the firm has tapped the U.S. investment-grade market with a bond linked to environmental, social, and corporate governance (ESG) issues since 2021, according to data compiled by Bloomberg. Toyota didn't immediately respond to a request for comment.
"You'll see a lot of ESG-labeled debt from the sector," Joel Levington, a Bloomberg Intelligence credit analyst, said on Thursday. "Most of the capital spending from the sector is going towards funding the transition to hybrid and electric vehicles."
The analyst expects Toyota's operating margins to likely rise just as its peers may face increasing pressure from the launch of new EVs, additional competition from Chinese manufacturers, and pricing tactics from Tesla.
"Toyota hasn't burnt a lot of cash in a rush to outdo its peers in an EV push, which is a win for bondholders," added Levington.
The automaker was among three issuers selling new debt in the U.S. investment-grade primary market Thursday. Deutsche Bank AG raised $1.25 billion with a fixed-to-floating rate note through its New York arm, following a number of other Yankee bank issuers that tapped the market this week. Syndicate desks are anticipating a very slow week in the primary market with $5 billion to $10 billion in new debt expected to price.
Proceeds from the debt, which the automaker is calling "woven planet bonds" will help fund projects that range from the development and manufacturing of battery electric vehicles, or BEVs, to green projects like solar and wind, according to according to an SEC filing.
Toyota's CEO Koji Sato in early April unveiled the beginnings of a long-awaited plan to electrify the automaker's vehicle lineup, promising that by 2026 Toyota will sell 1.5 million BEVs a year and roll out 10 new EV models. Meanwhile, Toyota is still far from producing electric vehicles at the same scale and pace as Tesla and rivals in China.
Thursday's debt deal tested investor appetite in the United States, where sales of sustainable bonds have plunged amid a political assault on ESG investing by some of the biggest names in the Republican party and increased scrutiny from money managers worried that companies are overstating the benefits of the bonds, known as "greenwashing."
JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Morgan Stanley are managing the bond sale, said the person. JPMorgan, Citi, and Morgan Stanley declined to comment, while BofA didn't immediately respond to a request for comment.
—With assistance from Ameya Karve, Michael Gambale & Andrea Niper.
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