Debut issuers rush Samurai market
Among the deluge of banks looking to sell Samurai bonds is a handful of inaugural issuers aiming to take advantage of currency and rate opportunities to sell short-term debt.
A slew of first-time yen-denominated bond issuers are taking advantage of favourable rates and currency opportunities to cement their presence in the Samurai market, laying the groundwork for other financial and sovereign issuers looking to diversify their financing at prices to match dollar funding.
Banks including Crédit Agricole and Pohjola Bank are gearing up to sell their first yen-denominated bonds, while HSBC prepares its first Samurai since 2011 and the Slovak Republic prepares its first since 1994, according to Dealogic. The bonds come at a time when funding in the market has turned favourable due to Japan’s newly implemented quantitative easing (QE) programme.
“The fact that so many of the names in the current pipeline are inaugural issuers indicates strong opportunities, which means good pricing and good investor demand,” said one Tokyo-based debt capital markets (DCM) banker. “Crédit Agricole and Slovakia – they’re names that have always had opportunities to issue Samurai bonds but have held off for a very strong environment. I think we’re seeing this happening now.”
The upcoming Samurai sellers, which have reportedly filed their documents to Japan’s Ministry of Finance (MoF), follow more seasoned issuers including Rabobank, Nordea Bank and J.P. Morgan to the market.
The most recent of these is J.P. Morgan, which printed a ¥105.6 billion (US$1.09 billion) four-tranche bond on June 6, reportedly achieving nearly equivalent pricing to its respective dollar debt.
The bank’s ¥51.5 billion three-year tranche priced at 0.462%; it’s ¥27 billion five-year priced at 0.665%; and its ¥11.9 billion 10-year tranche priced at 1.279%, according to Asiamoney PLUS’ sister publication EuroWeek. It’s ¥15.2 billion three-year floating rate issue also price 20 basis points (bp) over three-month yen Libor.
“J.P. Morgan’s pricing for its multiple tranches was in line with secondary trading in the dollar market, and overall it’s possible that it paid just a small premium to its dollar curves but it was a very good deal for them,” said the head of Japan debt syndicate away from the deal.
Bankers point to Rabobank as an example of how prices have improved for global issuers. On October 24, 2012, Rabobank issued a deal that included a three-year tranche priced 40bp over swaps to yield 0.563%, and a five-year tranche priced 40bp over swaps to yield 0.778%. It also had three- and five-year floating rate tranches that pay 35bp and 50bp over three-month yen Libor, respectively.
Fast-forward to May 17, and Rabobank priced its three-year tranche 10bp over swaps to yield 0.487%, and a five-year tranche priced 14bp over swaps to yield 0.708%. It also sold three- and five-year floating rate tranches priced 20bp and 24bp over three-month yen Libor, respectively.
This favourable pricing expected to extend to the debut and returning issuers.
“For the inaugural issuers out there, Pohjola will be compared to the Nordea transaction. Crédit Agricole and HSBC have decent outstanding debt in the eurobond market so investors can easily compare the deals,” said the head of debt syndicate. “It would be surprising if these names would also have to pay a premium to their dollar or euro debt.”
The same can be said for sovereign issuers. The DCM banker says investor appetite for yield is strong enough that even ‘BBB’ names would be able to sell debt under their own strength without a Japan Bank for International Cooperation (JBIC) wrap. In the past, even higher investment grade names would seek a guarantee from JBIC to both entice investors and issue at lower prices.
However inaugural issuers are advised to keep their bond shorter-dated rather than longer than five years. Given the recently volatility in the Japanese government bond (JGB) market, investors have been keen to buy higher-yielding 10-year bonds and beyond, which pay approximately 1% or more.
Interest rates for shorter tenors have been less volatile, so issuing three-to-five-year paper could mean both greater stability and investor demand.
“J.P. Morgan was able to print a 10-year bond because it’s a frequent issuer which has a programme, but if you’re a first-time issuer then the best rates are in the three-to-five-year area, where you can issue smaller amounts and investors will get a slight pickup to JGBs,” said the head of syndicate.
Samurai market rounds a bend
The rush for yen issues which also includes Renault and Korea Development Bank in the past week marks a turnaround from the early months of 2013.
Samurai DCM volume stands at just ¥414.3 billion via seven deals in 2013 YTD, down 68% from 2012 YTD and the lowest YTD volume since just ¥183.9 billion was issued in 2006 YTD, according to data provider Dealogic.
Yet dealers anticipate that the market has rounded the bend. Earlier this year, global issuers stayed away because prices in the dollar market were amply favourable, and Japan’s economy was uncertain before new BoJ governor Kuroda assumed his role at the central bank and launched its QE programme.
This not only helped boost economic growth and drive down JGB prices – prompting investors to seek higher-yielding products – but it created an opportunity for overseas issuers: part of the BoJ’s goals with QE is to weaken the yen by doubling the money circulation over the next two years. That means Samurai issuers can sell debt now, swap the proceeds into their home currencies, and repay their bonds when the yen weakens down the road.
“We’ll see more issuers come out in June before the window closes in July, when banks have to release their second-quarter results,” said the Tokyo-based DCM banker. “Otherwise the next window to issue will be in late August and September [after banks release their results].”