All hail the Samurai
The Samurai market has shrugged off the negative sentiment hanging in the air when at the end of last year some market participants were suggesting it reached its jet-coaster ride ascent. The nearing of the half way through 2008 has already accumulated volume from Samurai issues, including self-led deals, topping ¥1.4trn (US13.3bn). Atanas Dinov reports.
The volume of Samurai issues achieved already this year is truly remarkable, already matching the total annual issuance over much of this past decade. The fact that the majority of new prints came at a time when the sub-prime jitters were still being felt makes it all the more impressive. And the volume could well increase, given that some ¥797.9bn of Samurais are maturing this year, according to data from Thomson Reuters.
The Samurai market offered the liquidity to foreign borrowers after the credit crunch carnage brought tightening to other major global markets. The Japanese market was active when the US and European markets were shut at the end of the last year and for some timer at the beginning of this year.
In fact, after seeing slightly more than ¥2.2trn, an almost record volume of issuance in 2007, the opinion about the market at the end of last year was divided.
At the time there was a vocal minority of domestic and foreign bankers voicing a sharply pessimistic opinion about what was to come in 2008. They were predicating a gloomy picture for this year. Some pointed towards the many Japanese investors biting their lips from the widening of the US FIGs’ Samurais.
Traditionally, the largest borrowing in terms of market share comes from the US, with more than half of the market’s total issuance. Its financial sector is particularly active, as Thomson Reuters data shows.
"The Japanese institutions were relatively less hit compared with the US and European counterparts. The investors are historically stable, they are mostly buy-and-hold, no flippers in the market, and this provided the needed liquidity," said Koh Kawan, head of non-Japan debt syndicate at Daiwa SMBC.
There is also another view point. “The spread was one of the main reasons to get investors interested. Well-known issuers came to the market and offered a spread of 100bp [over Libor] compared to domestic issuers which were issuing at about Libor flat,” said another syndicate official at a major house.
This was visible at the end of the first quarter of 2008 when the Asian G3 investment grade landscape was dismal, with just one completed public US dollar deal – a US$300m five-year in February for South Korea's Komipo. This is where the Samurai market stepped into the breach. “Late last year and earlier this year, Japan was automatically the cheapest place to issue,” said a London-based fixed income banker.
The market remained spectacularly robust – in fact, even a sense of freshness could be felt. All this came despite US financial institutions having been notably absent from the market this year. Issuance by US borrowers, in the current absence of the large investment banks, has totaled about US$4.2bn in Samurais year to date.
The market has also been transformed by the disappearance of well-rounded deal figures, which have been replaced by eye-catching, odd-number issue sizes in the vast majority of deals.
"The odd-figure issue sizes show that brokerages do not have much capacity to aggressively take positions. This would continue for at least the whole year and may be next year could get better," said Tetsuo Ishihara, senior credit analyst at Mizuho. "The odd issue size figures send out a signal to the market that there is not so much secondary liquidity. This can be good if you are buyer, it would mean cheaper prices, but also it will be a hard time for the selling side to get a good bid price, depending on the issue."
As for Asia, when it comes to Korean borrowers they usually represent the lion’s share of issuance. However, they have had a lacklustre 2008, having so far printed slightly less third the volumes generated by in 2007.
Woori Bank has started early Samurai documentation work and has mandated Credit Suisse, Merrill Lynch, Nikko Citi and UBS for the job. However, the decision by Export-Import Bank of Korea (Kexim) to pull its deal, filed as ¥28.5bn, at the 11th hour sucked some wind out of sails for Korean issuers in that market.
Meanwhile, the top four Australian banks have been having a field day, printing an astounding ¥489.9bn, representing an almost four-and-half-fold increase compared with 2007's ¥110bn of issuance.
Westpac’s ¥77bn five-year deal in late January was quickly followed by National Australia Bank’s (NAB) ¥90bn second Samurai.
In early March, ANZ made its maiden foray into this market and printed the largest wholesale transaction from down under, a ¥135.8bn three-tranche issue.
In April, Commonwealth Bank of Australia (CBA) brought back a golden oldie – the retail targeted vanilla Samurai – as part of its ¥147.1bn multi-tranche deal. Nikko Citi managed the retail portion of the deal, and the firm later placed a second retail-targeted ¥40bn three-year note for CBA in mid May.
And unlike the all four major banks – at the time of writing – St George Bank debut Samurai is believed to be on hold following a takeover bid by rival Westpac, Aussie financial services group Suncorp-Metway is in the market.
"The catalyst for us to look at the Japanese market was that the euro market - our traditional place of offshore issuance - is pretty much closed and is not particularly liquid at the moment for Single A rated, cross-border term debt,” said Chris Skilton, chief financial officer at Suncorp- Metway. “We are dependent on offshore borrowing to a certain degree and it is a natural diversification for us to approach a debut Samurai transaction in Japan.”
The deal would represent an inaugural deal from a bank Down Under that has not issued in the Japanese public market before. It has been indicated with minimum size of ¥15bn and could possibly provide an indication as to whether smaller-sized financial institutions from the region could further access the market.
The new faces and the old names
The pace is picking up, helped by the two successful maiden forays from the ¥146.3bn Royal Bank of Canada at the end of April and the ¥160.3bn pumped out by Rabobank in the first week of June.
GE Capital was also back with a chunky ¥152.6bn four-trancher in May cementing its reputation as a regular and committed borrower.
There is more to hit the market, especially in June and July when the AGM season starts in full force and the domestic market typically tends to be quieter, while Samurais are expected to be centre stage.
Market watchers tip Daiwa SMBC – currently occupying number one spot in the Samurai underwriters league table with more than ¥350bn, or a 28% market share – to be the busiest house this summer.
The hectic pace looks set to continue, judging by the known pipeline of deals, at the time of writing.
As for issuance by US borrowers, in the absence of the bulge-bracket banks it currently amounts to about ¥351.3bn in the year to date, or about 47% of the enormous US$9bn total volume seen in 2007.
Prudential Financial, the second-largest US life insurance firm, mandated Daiwa, Mitsubishi UFJ and Nikko Citi to lead its debut Samurai offering in three-year fixed and five-year fixed and FRNs.
Meanwhile, UBS has also announced it is preparing its debut self-led deal. The bank has indicated five-year fixed and floating tranches in its initial marketing stage and the deal is expected to price in June.
And RBS completed a Japan roadshow after filing a Samurai shelf registration at the beginning of June. The market believes a maiden transaction will be emerging within June, likely through RBS itself and a Japanese house.
Auto-maker Daimler was also back in Japan for investor presentations arranged through Daiwa, Mizuho and Mitsubishi UFJ. If a Samurai does materialise, it would represent the company’s first since its colossal ¥200bn four-trancher from October 2000.
SG has also filed a shelf registration as it has mandated Mitsubishi UFJ and Nikko Citi. An investor presentation is taking place in mid June. If a deal surfaces it would also be another first.
There are constant rumours regarding the US FIGs, as they are expected eventually to come under the public spotlight. One of the many reasons suggested is their need to refinance short-term debt.
While printing smaller issue sizes and offering more generous spreads compared with the past year is one approach that has gained ground, according to many Tokyo-based bankers, private placement in the form of Euroyen could also offer an option to raise funds.
But elsewhere in the rumour mill, talk is that the Republic of Latvia might have already mandated Daiwa and Mizuho for what would be another debut Samurai. Wal-Mart is mentioned as another potential candidate to tap the market. There could easily be more to come.
Middle Eastern names, such as, the Abu Dhabi Commercial Bank and Abu Dhabi National Energy Company have expressed interest into a potential yen issue if conditions permit. Abu Dhabi Investment Authority and the port operators Dubai World were already on the road in Japan.
Market gossip has circulated that Russian issuers have been also keeping an eye on the market. There are also the rumoured Irish banks with their more conventional credit stories to sell to the conservative Japanese investors.