Japan corporate debt mkt strained despite issuance

* Japan corporate bond issuance jumps in February

* Issuance led by high-rated firms and retail-oriented

* Issuers rated single-A or lower struggle to issue bonds

* BOJ's corporate debt buying seen having limited impact

TOKYO, March 6 - Japan's corporate bond market remains under strain despite a pick-up in issuance, with high-rated issuers paying high interest rates and lower-rated firms having trouble issuing bonds at all.

Corporate debt issuance, including some bonds issued by quasi-government agencies, jumped to 1.66 trillion yen ($16.91 billion) in February, the highest on Thomson Reuters data going back to 1997.

That was up sharply from 376.97 billion yen in October, when the market seized up as global stock markets nosedived and risk appetite fell in the aftermath of Lehman Brothers' collapse.

"It is very possible to view this as a first step towards normalisation," said Hidetoshi Ohashi, credit strategist for Morgan Stanley.

"But if you ask whether there has been a real recovery that is not the case at all," Ohashi said.

The debt issuance in February was led by companies with credit ratings of double-A or higher, including Toyota Motor Corp, which raised 200 billion yen in its first bond sale in almost seven years.

The other factor that boosted issuance last month was that financial institutions issued bonds for retail investors.

"If you take out the bond issuance to retail investors the total is around 700 billion yen, and that is not a historically large amount," said Yasunobu Katsuki, chief credit analyst for Mizuho Securities.

Households are being targetted because institutional investors have taken hits from the global financial crisis and become shy about risk-taking. This is especially true ahead of their fiscal year-end book closings at the end of March.

As a result, aside from bonds issued by wireless carrier KDDI Corp in February and Kobe Steel Ltd in December, there has hardly been any issuance by firms rated single-A or below since October, except for bonds sold to retail investors, analysts said.

NO QUICK RECOVERY

"The situation is still tough for those that are rated single-A or lower," said Katsuki at Mizuho Securities.

Even companies with credit ratings of double-A or higher have issued bonds at a relatively high cost.

When Panasonic Corp, the world's No.1 plasma TV maker, launched 400 billion yen in bonds this week, they were offered at yields that were 0.60 percentage point to 0.75 percentage point above Japanese government bonds.

Such levels were similar to the launch spreads on the bonds Toyota issued last month.

"A year or two ago, the type of brands that would issue bonds with spreads of 60 to 70 basis points (over JGBs) were the ones with triple-B credit ratings," said an analyst for a Japanese brokerage who spoke on condition of anonymity.

Analysts said the Bank of Japan's outright buying of corporate debt that started this week was unlikely to have much of an impact, because the type of bonds that the BOJ has said it would buy are usually in demand among investors.

The BOJ has said it would buy corporate bonds rated single-A or higher that have a year or less left until maturity.

"I don't think you can hope for a recovery in the debt issuance market or smoother corporate financing conditions by doing this," said Katsuki at Mizuho Securities.

Earlier this week, the BOJ offered to buy 150 billion yen in corporate bonds outright, but the operation only attracted bids of 44.9 billion yen.

Even after the start of a new fiscal year in April, a quick recovery in the corporate bond market may not be in the cards.

Corporate earnings results due in May and June will probably be bleak, and that may cause corporate credit ratings to be downgraded, said Ohashi at Morgan Stanley.

"I don't get the sense at all that conditions will recover within the next three months or so," Ohashi said.