By Miho Uranaka and Sam Nussey TOKYO, Feb 5 (Reuters) – Japan's Nippon Steel is considering selling as much as 500 billion yen ($3.2 billion) of convertible bonds, according to two sources with knowledge of the matter, in a transaction that would be the largest of its kind in Japan. The steelmaker is considering making a final decision as soon as this month, the sources said, declining to be named as the information is not public. Reuters is reporting the potential issuance for the first time. Nippon Steel said in a statement nothing has been decided yet. The company's shares closed down 2% following the report. At 500 billion yen, the convertible bonds issuance would be the largest of its kind in Japan, according to LSEG data. The issuance amount could be reduced or the plan could be reconsidered, one of the sources said. Nippon Steel favours issuing the convertible bonds to avoid a capital increase that entails immediate share dilution and, with domestic interest rates rising, it can issue them as zero-coupon bonds, the sources said. Convertible bonds can be converted into shares at a predetermined price. The steelmaker requires capital for the expansion of its overseas business including in the U.S. and India and for decarbonisation initiatives. The company also needs long-term funding to replace a bridge loan it took out for its acquisition of U.S. Steel last year, which totalled around 2 trillion yen, the sources said. The steelmaker's business performance has deteriorated amid U.S. President Donald Trump's tariffs on steel imports and competition from exports from China. The sources also said the Japan Bank for International Cooperation is considering lending funds to Nippon Steel totalling roughly 1 trillion yen ($6.37 billion). JBIC said in a statement it would not comment on specific cases. ($1 = 156.9100 yen) (Reporting by Miho Uranaka and Sam Nussey; Additional reporting by Yuka Obayashi; Editing by Christian Schmollinger)
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