Yen has dominated in 2001 and the Japanese market is one that everyone wants to be involved in. But demand for quick response times and often complicated structures can make issuing in Japan tough. No one is better placed than Svensk Exportkredit (SEK) - a veteran of the MTN market and still one of the most frequent and innovative yen issuers around - to advise on what the key to success in Japan is. SEK has been in the market from the beginning and is by far the leading issuer of yen MTNs by volume of issues, outstripping its nearest rival by over ¥600 billion ($4.84 billion), according to MTNWare. And it was one of the first foreign issuers to hit the Japanese domestic market back in the late 1970s. Today it has more than 20% of the Uridashi market (Japanese domestic retail issues), while its nearest rival has less than 12%. But Per Akerlind, treasurer and head of debt capital markets at SEK, explains that it has more than just history on its side. It is SEK's pioneering approach that has allowed it to break through into so many markets. Akerlind says: "We have at least 20 different borrowing programmes, eight of which are MTN shelves. We have always wanted to be prepared to meet any investor demand in the world as efficiently and tailor-made as possible. So, for example, if the investor wants Japanese law we can use our Samurai MTN programme." SEK's desire to corner all available markets is shown in the diversity of its portfolio. Its ¥500 billion Samurai MTN programme is the first of its kind. It also has a Hungarian forint shelf, which was signed in February 1999 - one of only two in existence, a Matador programme and a Swiss MTN facility. Its choice of currencies also reveals its diversity. As well as issuing US dollar and yen, SEK has traded in Estonian kroon, Finnish markka, Portuguese escudo and did the first Latvian lat and Lithuanian lita issues in the Euro-MTN market. Goldman Sachs acts as a dealer on SEK's most prominent MTN facility - its euro25 billion ($22.76 billion) Euro-MTN shelf. Justin Bozzino works on the Euro-MTN desk at Goldman Sachs and is impressed by the issuer's innovative nature. He says: "SEK certainly prides itself in being one of the first issuers in any new currency in the Euro-MTN market. What really sets it apart from other issuers is its willingness to consider very small sizes." ABN Amro is particularly impressed by the issuer's responsiveness to new currencies and structures. Phil Whitehurst, MTN structuring group at ABN Amro, says: "SEK's currency diversity and structural range is a direct spin-off from its receptiveness to dealer innovation. Its attitude makes it an early participant in new markets." Despite its interest elsewhere, Japan remains SEK's most important market. At Euromoney's Euro-MTN conference in London in March this year, Johanna Clason, head of trading and capital markets at SEK, said: "Japan is definitely our number one market. We want to be the quickest in the market and we are hungry to do business." As with all international issuers, the weak Japanese economy has provided great opportunity. When MTNWeek carried out its half-year review in July (See MTNWeek, issue 239), it found that yen-denominated trades had increased by 30% in the first half of this quarter on the second half of 2000. With its focus predominantly on yen, SEK has been able to take advantage of the increasing demand coming out of Japan. Its competition are quick to point out that SEK may have an added advantage with its strong credit story. This is particularly the case in Japan, where investors are often attracted by established names and strong credit ratings (SEK is rated AA+ by Standard & Poor's and Aa2 by Moody's). Ever since it was established in 1962, SEK has been at least half-owned by the Swedish government. The government's control increased to 65% in June of last year. But Akerlind believes that there are qualities more important to Japanese investors than credit-worthiness. He holds that Japanese investors, perhaps more than any others, greatly appreciate issuers taking the time to market their product properly. Akerlind says: "We are always concerned that investors know what they are investing in and that they understand the structures. As an institution, we go to Japan at least three to four times a year. We try to spend around a week each time and we visit both intermediaries and investors." This commitment is vital to success in Japan where investors are traditionally conservative, often taking time to come around to new issuers and structures. Dealers agree that Japanese investors are particularly attracted to SEK's dedication. Schroder Salomon Smith Barney has been SEK's most frequent bookrunner this year, managing 44 of SEK's trades in 2001, according to MTNWare. Chris Cox, Euro-MTN trading at SSSB, says: "The sovereign relationship definitely opens up a wider investor base to SEK than to private sector issuers. But what really sets it apart is the investment it has made in developing its Japanese business through regular visits to Tokyo. When its owners changed recently (ABB became a new owner with a 35% holding), SEK immediately went out to talk to investors about what this meant. As a consequence of this commitment, investors are familiar with its name and it is on lots of buy-lists. When offering products with its name on, we are generally pushing against an open door." Whitehurst, at ABN Amro, agrees that SEK's success in Japan does not just lie in its past. He says: "The foundation for its early success was the state link and the rating. But beyond this, it quickly took an intelligent stance with respect to opportunities presented by the market such as getting retail licences, setting low minimum size thresholds and showing a willingness to issue structures." Due to the low interest environment in Japan, structured deals are very common as they enhance the return on investments. Akerlind, at SEK, says: "I believe that it is very important to deliver, specifically in Japan, and because of that intermediaries know us very well. They know they can trust that we can and will execute almost any structure. This gives us a benefit compared with many of our competitors. Keeping us in mind, intermediaries can commit themselves relatively deep against investors without having to wait until Europe wakes up, and therefore the probability of executing deals increases." And Cox, at SSSB, praises SEK for its consideration of structured opportunities. He says: "It is SEK's openness and ability to respond to new structures that is its most impressive feature." But the language barrier to Japan can create an extra problem when attempting to get an issuer's story across to investors. But SEK is pioneering ways to overcome this handicap. Akerlind says: "The language difference is much less of a problem today than it used to be, but it can pose difficulties. In connection with various transactions, we have sold material in Japanese which is even more important today when many smaller regional institutional investors are buying our papers. We are thinking of making this Japanese material a permanent feature and establishing a Japanese version of our website." Whilst the advantages of new technology can allow for such advances, the old rules in Japan still apply. Openness to structures is essential to keep investors' attention, but so are quick response times. Akerlind believes that SEK's desk is perfectly set up to deal with such a demand. He says: "We have, including Johanna Clason and myself, six people involved in long-term funding and we do all types of transactions that appear, whether it is MTNs, private placements, public deals or loans. We try not to specialize, so all of us are capable of doing transactions and are prepared to execute at all times." This approach serves SEK well when dealing with its contacts in Japan. Akerlind explains: "We have open mandates outstanding to many dealers for common structures where they can execute in Japan during Tokyo time and report to us in the morning, Swedish time. It is important though, that the structures are known, as we always price all transactions individually." Whitehurst, at ABN Amro, agrees that a strong credit story and rating are nothing if not backed up with the right people on the desk. He says: "Every good plan needs effective implementation and SEK have a thoroughly professional approach which allows dealers and investors alike to participate in the benefits of its strategy."
August 31, 2001
