Loans bankers in Tokyo have been trying hard to convince their foreign clients to tap the yen loan market. It is, in many ways, an easy sell — Japanese banks are liquid and hungry for the returns that foreign borrowers would give them. But it is also a necessary one, because there is little else keeping these bankers busy.
Japan’s domestic loan market has suffered from tepid growth for years and this doesn’t look likely to change anytime soon. The country’ banks and corporations, as well as foreign analysts and economists, have got used to catatonic economic growth, and changes in sentiment, such as that which followed a burst of reconstruction spending after the Tohoku earthquake, tend to be short-lived.
It is only natural, then, that Japanese loans bankers should look to foreign clients to increase their business at home. But their peers on DCM desks are doing the same and they have had a better time of it this year. Loans bankers managed to close yen deals worth around $3.11bn for foreign companies in the first three quarters, down more than 50% from last year, according to Dealogic. Samurai volumes, although down, have lost much less momentum.
This is a sore point for bankers hoping to originate more domestic yen loans from foreign companies, what some bankers now call Ninja loans. But in the long-run, they will be thankful. These Samurai bonds just increase yen funding needs for the future — and sooner or later, that will be a boon for the country’s loans bankers.
Forget diversification
Loans bankers hope to announce a handful of Ninja deals early next year, after talking to a mix of European, US and Asian borrowers. Industrial Bank of Korea is an obvious candidate and is considering returning to the market after beating its Samurai costs with a ¥21bn loan in November.
Loans bankers and funding officials now argue there is little or no pricing difference between the two markets, so this saving would not be possible if IBK returned to the market right now. But that could change at any moment and the loan market can still offer an easier time for borrowers.
The Samurai bond market is undeniably liquid but borrowers privately complain that the real price-setting power lies in the hands of only a handful of big investors. These pushy accounts leave a sour taste in the mouth of many foreign funding officials, and if they can be avoided by relying entirely on the country’s vast financial network, so much the better.
These investors will also not always be willing to accept the razor-sharp rates they are happy with right now. This is Japan, so a triple-digit move in bond yields is unlikely. But there might be enough of a move to allow loans bankers to siphon off more business for themselves.
The spate of Samurai issuance this year increases their chances of doing that in the future. The more deals there are, the more refinancings that will need to come — and as much as funding officials like to pay lip service to concepts like diversification and opening new markets, it is refinancing that will drive business for Ninja loans bankers in the years to come.
The Samurai bond market may have hogged the limelight this year, but loans bankers should not be deterred. After all, Ninjas operate in the dark — and the more advances the Samurai market makes, the more Ninjas will have to take back in the future.