Maturity: March 19, 2008
Issue/re-offer price: 99.993
Spread at re-offer: 4bp over the 1.9% March 2008 JGB 201
Launched: Tuesday February 18
Joint books: Nikko SSB, Nomura
Nikko SSB - We were delighted to be mandated for this transaction, JBIC's first international yen transaction since 1995.
The borrower wanted to raise ¥60bn over five years and it suited them to bring the issue in Euroyen format rather than using the global structure. We had advised JBIC that the demand profile of a transaction of this size would suit that process.
We announced the issue at the end of last week and the book has built steadily throughout the process. The initial price guidance was 2bp-4bp over JGBs. The issuer took the view that, if they were to take the most responsible approach to pricing, by offering the issue at plus 4bp, they would continue to promote the reputation of good execution and aftermarket performance that has been generated by all the recent Japan government guaranteed yen transactions.
We therefore went out with plus 4bp pricing on Tuesday and the momentum picked up markedly. We have seen continued customer buying since then from a number of quarters and the deal is bid at re-offer in the street.
Distribution has been broad with the UK taking 23%, Europe 57%, southeast Asia and Australia 20%. In Europe the major participants were Germany, Scandinavia and Switzerland.
The investor list was heavily dominated by real money asset managers. We also had a number of central banks orders out of Asia and Europe.
Approximately 30% of the issue was sold on switch, either against JGBs or outstanding Euroyen or global yen transactions.
Being able to offer an explicitly Japan government guaranteed issue at a positive spread to JGBs, and in a format with which investors are particularly comfortable in a liquid deal size with the backing of major secondary trading houses were the main selling points of the deal.
Nomura - This is the first international yen bond for JBIC since 1995 and the deal was well subscribed by major international investors despite a market background of growing concern towards the Iraqi geopolitical situation.
The ¥60bn size is comfortable enough to provide liquidity and attract major investors who were eager to participate in five year liquid paper for a high quality credit. The attractive spread of JGBs plus 4bp is the optimal result based on conversations with major accounts during the marketing period. It is on a competitive level with other Euroyen and global yen benchmark issues.
This is the first Japanese government guaranteed bond in the international market in 2003. The JGB curve has been flattening sharply and performing well in 2003.
The 10 year JGB yield hit 0.75% on January 30, the lowest yield since October 1998, and the issue for JBIC with its five year maturity matches the investment requirements for investors wishing to shorten duration.
The five year maturity is closer to the average duration of major JGB indexes and many investors feel comfortable having the bonds in their portfolios.
The fact that there is no current benchmark for Japanese government guaranteed issues, the liquid size of the JBIC, the outperformance of JGBs versus swaps encouraged switching out of Euroyen and global yen issued by non-Japanese issuers.
The pricing of JGBs plus 4bp was in line with JBIC's secondary bonds, continuing the borrower's policy when it issues foreign currency bonds, but still competitive against other major Euroyen and global yen benchmark transactions.
The bond sold well at re-offer to a broad geographic spectrum of clients with the UK taking 57%, continental Europe 57%, non-Japan Asia/Australia 23%. Funds were the biggest players at 47% followed by banks and central banks each with 23% and asset managers and life insurers 7%.
The funds raised by the bonds will be used for foreign currency-denominated loans in international financial operations.
"...we have not had a five year Euroyen issue since the Italy deal launched in 2001 - most of the five year deals we trade are old 10 year bonds, The market needed some supply to provide liquidity even though it was a relatively small transaction at ¥60bn.
The pricing at JGBs plus 4bp was correct and we sold our bonds instantly to a Scandinavian fund."
"...correctly priced and our small allocation sold into Europe on switch out of older Euroyen issues or out of JGBs, mainly to clients shortening their maturity profile in the sector.
Ideally, the transaction would have been larger than ¥60bn and either shorter or ultra-long but it will still be liquid and is an important deal for the market - the first real Euroyen issue of the year and the first Japanese government guaranteed issue in the market since last November."
"...the pricing of the JBIC was reasonable, perhaps 1bp on the generous side - but that was necessary because of the uncertainty in the market. The spread of 4bp over JGBs gave investors an added incentive to participate.
The deal is not the same kind of attention grabber as the 20 year for DBJ or the 10 year for JFM but five years is a safe and defensive maturity, which again is sought after in these uncertain times.
Some of the large investors and US money accounts have not participated in the issue because of its Euroyen format rather than global one. But we have seen decent interest from UK investment managers and, given the lack of supply in this sector, I have no doubt that the issue has gone well."
"...a good deal. We sold our allocation quite quickly into non-Japan Asia. The spread at 4bp over JGBs was attractive. It gives investors a pick-up of more than 10% over JGB yields, which are around 0.30% at the moment.
There are still a few investors that continue to have problems with taking JGBs for withholding tax reasons, and they were pleased to buy into a Japanese government guaranteed issue at this level."