Saturday, 20 October 2018

Yen Bond: Rabobank’s ¥101.5bn four-part Samurai bond

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New world orders

The Samurai market faced some notable challenges in 2013: a less than benign basis swap from yen into US dollars and the rate uncertainty surrounding Abenomics and the Bank of Japan’s quantitative easing programme. If that weren’t enough, credit spreads were near the all-time lows seen just before the 2007-08 financial crisis, something which was a deterrent for investors.

Rabobank met this challenging backdrop head-on and in the process in mid-May produced a landmark deal that effectively set the tone for the Samurai issuance which emerged over the rest of the year.

The Dutch bank priced a ¥101.5bn four-part Samurai, with the trade representing the first Samurai of the fiscal year and one brought against a backdrop of hair-raising JGB volatility.

The deal, led by Daiwa, JP Morgan, Nomura and SMBC Nikko, included a ¥41.3bn three-year fixed piece which priced at offered side swaps plus 10bp for a 0.487% coupon and a ¥43.5bn five-year fixed piece which came at the swap offer rate plus 14bp on a 0.708% coupon.

There were also two floating-rate tranches: an ¥11.8bn three-year FRN at yen Libor plus 20bp and a ¥4.9bn five-year at yen Libor plus 24bp. A putative 10-year fixed piece that had been marketed at offered side swaps plus 29bp–30bp was ultimately pulled when it failed to gain sufficient momentum.

“The challenge was to bring a transaction that reflected the global credit tightening in 2012, but also against the backdrop of a huge back-up in rates in Japan due to Abenomics really taking hold,” said Kazuhide Tanaka, head of Rabobank’s corporate treasury in Tokyo. “Nothing had been issued since late January after a couple of small Korean deals.”

Tanaka explained that institutional investors, which anchored Samurai deals in 2011 and 2012, were absent because they could not accept the new spread environment.

“Despite this setback, we still managed to accumulate over ¥100bn in orders. The deal was a true reopening of the market, as banks and investors accepted the new rates and spreads regime, allowing further issuance by other high-grade names,” he added.

The deal was the first Samurai since South Korea’s Woori Bank and KT Corp brought ¥30bn trades in late January and early February and the first from a European institution since BPCE’s ¥67.2bn offering in December 2012.

Rabobank neatly achieved its target of pricing competitively to its euro curve. The three-year fixed yen piece would swap to six-month euros plus 31bp and the five-year at plus 58bp. Meanwhile, the Rabobank due 2016 euro bond was at a Z-spread of plus 40bp and the 2018s at plus 57bp. So the bank came 9bp through its euro term funding cost at three years and almost flat at five years.

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