Rating: Aaa/AAA
Amount: ¥65bn global
Maturity: 10 November 2011
Issue/re-offer price: 99.986
Coupon: 1.45%
Spread at re-offer: 10bp over the yen swap offer rate; 27.3bp over the JGB 234
Launch date: Thursday 2 November
Payment date: 10 November
Joint books: Daiwa SMBC Europe, Mitsubishi UFJ International
Bookrunners' comments:
Daiwa — We were pleased to be appointed as a joint bookrunner on this transaction and associated with this successful outcome.
We announced the mandate on Tuesday morning after the Bank of Japan MPC meeting and immediately began to get a solid response from Europe. By the close of business on Tuesday in London, we were already roughly 50% subscribed based on an issue size of ¥50bn.
The book continued to build on Wednesday and by the London close that day, we were oversubscribed allowing for an increase in issue size to ¥65bn.
The deal has been a great success. It was priced at the JGB 234 plus 27.3bp, which equated to a swap spread over yen Libor of plus 10bp.
International investors were pleased to see a deal that offered a change from the recent diet of agency paper seen in the public Euroyen market.
The regional distribution for the transaction is Europe 54%, non-Japan Asia 22%, US offshore 12% and Japan 12%. By investor type, the split is asset managers 60% and central banks 40%.
Clearly GECC remains a popular name with international yen investors and future issuance in this market is clearly assured by the success of this transaction.
Mitsubishi — We were delighted to be appointed joint books on this transaction for GECC.
Non-Japanese investor demand for yen assets has been strong in recent months reflecting their awakening interest in the sector. This has driven a series of high grade public sector new issues for borrowers like rhe Republic of Finland, ICO, BNG, DBJ and KfW across the curve from one to 20 years maturity.
We recognised that despite this the five year window had remained untapped and that broad interest existed for a liquid issue that could offer more spread than public sector paper, which typically comes at narrow spreads over JGBs.
GECC, as the undisputed AAA corporate benchmark issuer, was a perfect candidate to meet that demand. The strategy to issue in global format was to meet demand from US accounts (mostly offshore funds) as well as the larger international yen portfolios compared to the majority of recent GECC yen issues that have had a distinctly Japanese focused distribution.
Coincidentally, the maturity today of a ¥65bn 1.4% GECC issue launched in 2000 added a potential reinvestment play for some investors.
The mandate was not announced until London morning on Tuesday (after the BoJ's semi-annual report and press conference) and bookbuilding started with spread guidance of yen swaps plus 10bp. This was consistent with secondary levels of GECC's US dollar benchmarks and was 2bp-3bp tighter than the secondary trading level of similar maturity Samurai bonds.
Based on our initial expectation of a ¥50bn issue size, the books were about 50% subscribed before we started in Asia on Wednesday and we were oversubscribed by London morning Wednesday.
GECC agreed to increase the issue by a further 30% to meet the additional interest we had identified and we priced the issue at Libor plus10bp early Thursday morning London time.
Our demand, and indeed that of our joint lead Daiwa SMBC, was broad based with UK/Europe taking 54% of the overall issue followed by non-Japan Asia with 22% and Japan and offshore US funds at 12% each.
The quality of the book was extremely high with prominence from the central bank and asset management sectors, the former accounting for 40% of the book and the latter for most of the remaining 60%.
The JGB spread at pricing was +27.3bp and the issue has been bid through the morning marginally tighter at +27 bid.
This has been one of the quickest and highest quality distributions of an international yen issue that we have seen in some time. It reinforces investors' positive perception of GECC as an issuer that provides a unique combination of high credit quality, liquidity and attractive spread.
Market appraisal:
"...with the GE 2009 trading at mid-swaps plus 5bp and the 2012s at plus 9bp, at 10bp over the offered side of swaps, this issue represents good value.
We had little difficulty in placing our retention."
"...originally sized at ¥50bn, they were able to increase the deal to ¥65bn — so obviously a good outcome.
The pricing is uncontroversial at plus 10bp — that is where GE's last Samurai was priced — and I believe the bulk of the deal has been placed in Europe.
The yen market is quite buoyant. There has been a reasonable amount of issuance in the last two or three weeks but most of it has been absorbed. As GECC is offering a little bit more spread than the triple-A supranationals and agencies which are trading between 5bp and 10bp over JGBs, the deal has been welcomed by investors."
"...its good to see this kind of big liquid trade in the market.
There has been a reasonable amount of yen issuance recently but nothing in the five year part of the curve so the maturity was well judged.
GECC has a strong franchise globally and as a rare triple-A corporate, it pays more than the usual triple-A SAS borrowers. As such it was the perfect name to bring to this reinvigorated market."
