TOKYO (Reuters) - Major banks have rushed to tap Japan's investors as the global credit crisis made lenders wary elsewhere and more banks are expected to take advantage so long as U.S. and European markets are under strain.
By Rika Otsuka
TOKYO (Reuters) - Major banks have rushed to tap Japan's investors as the global credit crisis made lenders wary elsewhere and more banks are expected to take advantage so long as U.S. and European markets are under strain.
The Royal Bank of Canada <RY.TO> <RY.N> made its first ever sale of Samurai bonds on Tuesday, raising more than 146 billion yen in three tranches.
The Canadian bank is the latest foreign entity to issue yen bonds in Japan -- or Samurai bonds -- following in the foot steps of firms from South Korea and Australia, among other countries.
!ADVERTISEMENT!But U.S. banks have been noticeably absent, bankers said, partly because investors have been wary of the exposure of U.S. banks to the mortgage-backed securities market which sparked the global credit crisis.
"To overseas issuers, Japanese financial markets are more stable and less affected by the subprime mortgage woes," said Katsuhide Takahashi, senior credit analyst at Nikko Citigroup.
"With the interests of issuers and investors coming together, this trend of new issuers should continue."
The issuance of Samurai bonds has shown little change despite the onslaught of the global credit crisis, which blew up last August.
Issuance has totaled nearly 320 billion yen ($3.1 billion) since the new business year started this month, including Royal Bank of Canada's offering.
That's on top of a record 2.6 trillion yen in the last business year as Japanese investors, frustrated by falling interest rates at home, snapped up the higher yields offered by foreign financial firms that have emerged relatively unscathed from the mushrooming U.S. mortgage crisis.
Royal Bank of Canada was among many first-time Samurai issuers this year.
South Korea's Kookmin Bank <060000.KS> also sold its first yen bonds in Japan last week after postponing a deal earlier in the year due to volatile market conditions.
Typically the Samurai market had been dominated by big name U.S. companies like Citigroup <C.N> and Merrill Lynch <MER.N> because of their high credit ratings and efforts to establish a strong presence in the Japanese market.
But Japanese investors have become skittish about investing in banks hard hit by the credit crunch.
With Japanese official interest rates at just 0.5 percent and little prospect of moving higher owing to the expected slowdown in the world economy, Japanese investors are looking for higher returns.
These include many of Japan's top nine life insurers, who said in a series of Reuters interviews that they wanted to invest more cash in Samurai bonds.
Royal Bank of Canada's five-year, fixed-rate Samurai bond was sold with a coupon of 2.02 percent, well above a domestic five-year offering earlier this week from Mizuho Corporate Bank that offered a coupon of 1.295 percent.
While the cost of raising funds in Samurai bonds has spiked along with tighter conditions in global credit markets, it is still lower than issuers would have to pay elsewhere due to Japan's low interest rates.
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Australia's top banks, Australia & New Zealand Banking Group <ANZ.AX> and Westpac Banking Corp <WBC.AX> were also first-timers in the Samurai bond market this year.
"Japanese investors like to buy Australian and Canadian Samurai bonds as their issuers generally have an image of being less saddled with losses linked to bad mortgage investments," said a syndicated loan official at a major Japanese brokerage.
More entities from developed countries and with strong name recognition are expected to start issuing Samurai bonds.
Japan's Nikkei financial daily reported on Friday that Abu Dhabi Commercial Bank <ADCB.AD> was considering the sale of Samurai bonds this year. Such a deal would be the first by a Middle Eastern firm.
Since Goldman Sachs <GS.N> issued 148.5 billion yen of bonds in late January, there have been no U.S. Samurai bonds offered as credit losses among U.S. banks escalated.
However, Goldman Sachs had to pay a high price for its deal. It sold five-year floating-rate Samurai bonds at a spread of 110 basis points over three-month yen money market rates, about double that of Australia's Westpac, which sold at a spread of 53 basis points in a floating-rate deal with a similar maturity.
Many bankers said there was no clear sign when U.S. banks might try to tap the market.
However, Yutaka Ban, chief credit analyst at Shinko Securities, said that U.S. financial companies might try to drum up some deals soon as some investors have begun to believe the worst of the U.S. credit crisis has passed.
"U.S. banks are likely to try to sell floating-rate Samurai bonds, whose credit spreads will narrow when credit jitters ease further," Ban said.
($1=103.06 Yen)
(Additional reporting by Takefumi Ito and Naoyuki Katayama; Editing by Neil Fullick)
