Tuesday, 11 December 2018

Yen Bond

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Showing the way: In a year in which few investors were willing to book European FIG paper, one bank bet that Japanese investors still had an appetite for the right name. For cracking the Japanese market open with a huge trade against a complicated backdrop, Nordea’s ¥120.2bn multi-tranche Samurai issue is IFR’s Yen Bond of the Year.

To see the full digital edition of the IFR Review of the Year, please click here.

Japanese investors are famously conservative and highly sensitive to downgrades so the fact that Nordea got one the year’s largest Samurai’s done just two weeks after being downgraded speaks to its quality. The deal also showed that the Japanese market was open for the whole sector.

Nordea’s ¥120.2bn (US$1.48bn) multi-tranche bond priced in early June at what looked like a bad time for the borrower and an even trickier one for the sector.

On May 25, Moody’s had downgraded the bank a notch to Aa3, along with its compatriot Handelsbanken. While the two Nordic banks still had good ratings, the move came six just months after Norway’s partly state-owned Eksportfinans was downgraded several notches to junk status, sparking a fire sale of its bonds.

In fact, Nordea was originally looking to tap the market in November 2011 but decided to postpone the deal because of Eksportfinans’s downgrading. By early 2012, however, the bank was again looking at coming to market.

The timing made sense because another Nordic bank, DNB, had managed to push a ¥60bn five-year Samurai over the finish line. That deal was not broadly distributed and the issuer achieved only slim savings over its dollar funding costs. However, it served as a green light for Nordea.

“Nordea did not rush the deal. They took their time, they listened to the feedback,” before pulling the trigger, said Richard Tarn, executive director of DCM in Europe for Mizuho, which was a lead on the deal alongside Bank of America Merrill Lynch and Nomura.

Patience paid off. When Nordea finally did its debut Samurai, the result was an astounding ¥120.2bn transaction. Only Rabobank’s ¥160bn deal later in the year topped it for size but Rabobank is a frequent borrower in Japan, well-known and prized.

Nordea also managed to print all the tranches it offered. Samurai bankers often float as many as five or six tranches but end up actually selling only a couple. “This was a rare instance in which we got all tranches done just because demand was so strong,” Tarn said.

The Samurai came out split into a ¥15.9bn 0.96% three-year tranche at yen offer-side swaps plus 55bp (85bp over JGBs); a ¥8.5bn four-year floater at 70bp over three-month Libor; a ¥85.3bn 1.2% five-year note at plus 72bp (96.5bp over); a ¥4.9bn five-year FRN paying 87bp over; and a ¥5.6bn 1.75% 10-year tranche printed at plus 82bp (86bp over).

The deal was seen pricing around where a new euro benchmark offering would have come, said bankers, when assuming a 10bp–20bp new issue premium in the uncertain environment at the time.

A large core investor is said to have taken a big chunk of the deal, followed by other large city banks and regional financials. Life insurers, casualty insurers and pension funds participated too. More than 100 investors placed orders.

Nordea was understandably thrilled with the result and the profile it gave the bank as an issuer.

“The success of the Samurai offering has been instrumental in raising Nordea’s profile in the Japanese market,” said Fanny Borgstroem, head of group funding at Nordea.

“At the time of execution, volatility in the European and US credit markets was high, investor concerns vis-a-vis European banking credits were certainly not to be ignored, and to achieve this result in that kind of environment is a true testimony of the global appeal of the Nordea credit story and brand.”

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