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Foreign Firms Will Go to Japan to Issue Bonds: Analyst

Volumes of Samurai bonds — yen-denominated bonds issued by non-Japanese entities — hit a 15-year high in 2011, and could be 20 percent higher in 2012, a Tokyo-based analyst told CNBC.com.

Crowds crossing the famous Shibuya Crossing intersection at the centre of Shibuya's fashionable shopping and entertainment district, Shibuya, Tokyo, Japan.
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Crowds crossing the famous Shibuya Crossing intersection at the centre of Shibuya's fashionable shopping and entertainment district, Shibuya, Tokyo, Japan.

Samurai bonds issuance reached $25.3 billion this year, the highest volume since 1996 when the Japanese bond market was deregulated.

In total, 39 deals came to the market in 2011, six more than in 2010 when issuance equaled $22.9 billion.

Issuers included European banks such as Rabobank, BNP Paribas and Barclays , while JP Morgan Chase became the first US bank to issue a samurai since Lehman Brothers collapsed in 2008.

Akane Enatsu, a Barclays Capital senior credit analyst, said Japan’s cash-rich investor base will entice foreign entities to continue tapping the market in 2012.

“In Japan, banks are pretty much the major investors for bonds, and they are relatively healthy compared to US or European banks,” she said. “Even though the Japanese market is not that attractive for issuers, because of the currency swap rate, they will still come because they know money is available.”

Some Japanese investors are “desperate” to park their cash, added Enatsu, as domestic bond issuance has remained subdued since last March’s 8.9-magnitude earthquake and nuclear powercrisis. Issues by utility firms — previously a cornerstone of the Japanese corporate debt universe — remain scarce.

Samurais also offer higher yield premiums than domestic issues, as Japan’s near-zero base rates (0.1 percent) push yields downwards.

“Because we are suffering from a very low interest rate environment, some of the investors are not as picky as international investors. Some of them are desperate to make investments,” said Enatsu.

Enatsu said Samurai bonds issuance will be 10-to-20 percent higher this year than in 2011, with exact volumes depending on how successful Japan is in solving its nuclear problems, and on whether domestic bond issuance picks up.

Potential issuers next year include banks, those sovereigns with a history of tapping the Samurai market, and supranational organizations such as the International Monetary Fundor the World Bank. Enatsu said there could also be a resurgence in 2009’s trend for issues by government-guaranteed institutions.

However, Enatsu said issues rated less than single-A were likely to attract little interest. “In general in Japan there is not much functioning of the high-yield market,” she said, adding that some investors might like to limit themselves to credits of A and above, but would struggle to do so given the stagnant economic climate.

The troubles of Franco-Belgian bank Dexia this year — to which Japanese investors were heavily exposed — means buyers will also be more assertive in 2012. “They will ask more questions and seek more disclosure,” said Enatsu.