(Bloomberg) -- A Japanese borrower that was hit by a record loss sold a yen bond at the widest spread for yen corporate hybrid debt this year in a key test of appetite as interest rates creep higher.

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Sumitomo Chemical Co. priced ¥100 billion ($700 million) of hybrid debt on Friday at 280 basis points over Japanese government bonds, according to an email from SMBC Nikko Securities Inc., one of the underwriters. That’s twice the spread on jumbo subordinated debt deals by Takeda Pharmaceutical Co. and Nippon Steel Corp. in June. Premiums on those offerings were considered generous at the time and came before the Bank of Japan’s surprise rate increase late July.

The closely-watched deal helped boost issuance of subordinated notes in Japan to a record so far this year, and came as the chemicals company returned to profit after a ¥312 billion net loss last fiscal year. The Tokyo-based firm is one of a slew of Japanese issuers that face call dates this year and next on hybrid debt, which is riskier and more expensive to sell than regular corporate bonds, but allows issuers to raise funds without affecting their credit ratings.

“It’s the first deal that lets the market test risk tolerance since volatility increased” after the rate hike, said Shunsuke Oshida, head of credit research at Manulife Investment Management Japan.

In Japan, sales of subordinated notes - which are repaid after senior bonds in a credit event, and have some features of equity - have risen 50% to about ¥3 trillion so far this year, according to data compiled by Bloomberg, with several issuers in the market Friday. That included textile company Toyobo Co., which sold such debt at a hefty spread, and Mitsubishi UFJ Financial Group Inc.

Sumitomo Chemical intends to use the funds to refinance its hybrid note sold in 2019, which has a call date coming up in December. The new bond has a 35-year maturity, and is callable after five years.

The company posted a net profit of ¥24.4 billion in the first quarter. Its plan to sell about $702 million of shares in Rabigh Refining & Petrochemical Co. to Saudi Aramco, is a “positive factor”, said Japan Credit Rating Agency Ltd., which grades the company A+ with a negative outlook. Sumitomo Chemical’s struggling drug unit Sumitomo Pharma Co. cut jobs at its US subsidiary, and announced in July a plan to reduce payroll in Japan.

The offering also served as a means of gauging appetite in the credit market as the BOJ keeps further rate hikes in play. Spreads on bonds in the Nomura BPI index are at 39 basis points, having increased on Tuesday for the first time since late March.

Demand was 1.9 times more than the issued amount, and buyers included life insurers, city banks, trust banks, asset managers and regional banks, according to SMBC Nikko.

(Updates to add demand and types of buyers in the last paragraph.)

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