Global Capital Japan Roundtable: SSA and Sovereign Issuers

Global Capital, September 2014

With world rates as they are, SSAs are find it difficult to justify raising funds in vanilla yen, impeded by the basis swap back to their core currencies. But there is innovation and demand in the uridashi markets, and highly-rated borrowers find their issues in higher-yielding currencies enormously popular with Japanese investors. Meanwhile sovereigns still find good value and popularity in the samurai markets.

Participants:

Ben Powell, Head of Funding, IFC Treasury

Andrea Dore, Lead Financial Officer, World Bank/IBRD

Hassatou N’Sele, Manager, Capital Markets and Financial Operations, Treasury Department, African Development Bank

Bogdan Klimaszewski, Deputy Director, Public Fund Department, Ministry of Finance, Republic of Poland

Sandeep Dhawan, Head of Funding, Americas, Asia & Pacific Capital Markets, European Investment Bank

Huib-Jan de Ruijter, Head of Funding, FMO, Netherlands

Vince Purton, managing director and head of debt capital markets, Daiwa Capital Markets

Sam Amalou, managing director and head of debt capital markets, SMBC Nikko

Steve Apted, managing director, SMBC Nikko

Chris Wright, Global Capital, Moderator

Global Capital: How important is yen funding for you?

Hassatou N’Sele, African Development Bank: It’s been a while since we have done a bond issue in yen. The Japanese market has been key for the African Development Bank. We launched our first samurai in the mid-80s, and towards the end of the 1990s more than 90% of our funding was done in Japan.

Our last samurai was in 2004 and unfortunately since then, the basis swap has not really worked in our favour. We do not extend as many yen loans to clients as in the past; most of our loan disbursements are denominated in dollars, euros and South African rand, and therefore we usually swap our yen borrowing into one of those three currencies. Nonetheless, we continue to be active in that market, mostly through structured products and private placement transactions.

Andrea Dore, World Bank: The Japanese market has been very important for our funding dating all the way back to our first issue in 1971: we celebrated our 40^th anniversary in the Japanese capital market in 2011. But in terms of raising funding in Japan, in yen or non-yen, that has changed over time.

We have seen periods when we have been able to issue significant amounts of bonds in yen – primarily structured bonds – and we have seen periods where demand has been more for plain vanilla foreign currency bonds.

In the past few years, the focus has been on the non-yen products, for a variety of reasons. For example, plain vanilla yen funding hasn’t worked much because we are a dollar-based issuer and have to take the proceeds back into dollars, so issuing in yen is expensive given the current basis swap levels.

On the structured products side, if you look back at the statistics for recent years you will see that we executed significant amounts of yen-denominated structured bonds particularly during the early to late 2000s.  Demand for those products, however, slowed down significantly in 2009.  Over the last couple of years, we started issuing equity-linked bonds given the buoyant equity market in Japan. We saw significant demand for products linked to the Nikkei index and also bonds linked to the Euro stoxx index.

Ben Powell, IFC: The majority of the yen-denominated funding we have done in Japan over the last year has been in structured uridashi, in large part Nikkei-based equity-linked uridashi. Yen funding represents about 5% of the IFC’s total issuance in our 2014 financial year.

Outside of the structured uridashi, vanilla yen funding is proving to be rather difficult. That’s been the case since 2009, because the basis swap has been elevated. That has made issuing in yen and swapping back to dollars a rather punitive exercise. Only when we add a structured component can we get the levels to work for us.

Sandeep Dhawan, European Investment Bank: After some years of limited issuance in yen due to the prohibitively high cost, our issuance in yen picked up during the second half of 2013. Since then, we have issued a high number of long-dated PRDCs, a 40-year fixed rate bond, and the first ever green samurai bond. Having said that, issuance in yen still constitutes less than 1% of our overall funding.

Huib-Jan de Ruijter, FMO: It remains a strategic market for us. It fits very well because of the size in particular: as a smaller issuer we can issue smaller transactions without being penalized for a lack of liquidity.

On the other hand, in terms of price it hasn’t been competitive for quite some time. That is the dilemma we are facing. On one hand we want to offer opportunities for our long-term relationships to invest with FMO; on the other hand we can’t really find yen product in a way that is both attractive to them and for us.

For those who issue little, is the swap the only problem?

Powell: Yes, just the swap. There is a paucity of international high quality names in the samurai or euroyen markets and the main hindrance for all of us has been the basis swap.

Dore: For plain vanilla Samurai or yen Eurobonds, issuance for us has been difficult because of the basis swap. As much as we would like to, we have a fiduciary responsibility to fund the bank in the most cost-effective manner on a sustainable basis since that cost is passed on to our borrowers.

De Ruijter: Yes, it’s really about the basis swap. A good development, in terms of spread, has been the CDC transactions, whereby for the first time in a number of years pricing has been through yen swaps. In terms of spread, a potential transaction could definitely work; the basis swap is the punitive element.

Will the CDC transaction be a model other issuers will follow, and price through swaps?

De Ruijter: I would say yes from the SSA sector: now that the first one has been priced through swaps there should definitely be others that are able to follow. But the question for most issuers that price through swaps is how it compares when you look at it back in dollars or euro cost of funding terms.

How about for the sovereign issuers here – how is the Japanese market working for you?

Bogdan Klimaszewski, Poland Ministry of Finance:

Entering the Japanese market with samurai bonds in 2003 was, for us, the first step to establish a relationship with the Japanese investor base. We have always appreciated the capabilities of the market, and have tried to be visible and present interesting offers to Japanese investors. At the beginning, we focused on issuing samurais and presenting our general credit story. Now, our local market – Treasury bonds denominated in Polish zloty – attracts a lot of Japanese investors.

Fundraising in yen is relatively small when compared with local funding (which is roughly 70-80% of our total requirements annually) or with funding in euros or US dollars. Yen-denominated debt represents about 1.8% of Poland’s stock of debt.

The cost competitiveness of yen funding has decreased in relative terms as yields have gone down globally. We see our local 5-year bonds at 2.6% these days, keeping in mind that a key rate in PLN is 2.5%, and the FX risk is also a factor that must not be overlooked.

How about the role of Japan in your non-yen funding?

Klimaszewski: We see a huge inflow of Japanese-origin investment into our local Treasuries market. We have quite accurate data on the structure of bondholders of POLGBs, and they show that Japan is the third-biggest investor base for us, after local and US investors.

Dhawan: The characteristic thing about the Japanese market is its depth and breadth: a deep pool of savings spread across the entire gamut of fund management institutions, banks, insurance companies and retail. Japanese investors have historically played a key role in our funding, especially in currencies such as US dollars, euros and Australian dollars.

De Ruijter: That has been working well, particularly in Aussie dollars. If I look at our funding this year, a substantial part of that has been done in the form of kangaroo transactions, and a significant part of the demand for those was provided by Japanese investors. That seems to be a much better match than using yen itself.

Powell: We did about $1.8 billion of funding in the Japanese market last year including private placements and uridashis, of which about $600 million was yen-denominated. Then uridashis were issued in Aussie dollars and Brazilian real in particular.

Also important is the participation from Japanese institutions in our public market issuance in, for example, Australian and New Zealand dollars, so when you add that as well, you get to about $3 billion, which is 22% of our FY14 funding programme. It really underlines the importance of Japanese investors in our funding.

Have those numbers been consistent?

Powell: It’s been pretty stable over the last two years. But it’s a market where we are looking to do as much as we can. We’re looking to increase our activities with smaller securities houses, trying to tap into a broader network of broker-dealers in Japan, so we can do more in the uridashi and private placement space.

Dore: ‎While yen funding is important but challenging, Japanese retail investors in this low-rate environment have been big supporters of non-yen products. That has been a very important market for us. We have been able to issue large volumes in non-yen currencies, like in Australian and New Zealand dollars through the uridashi market. However, in the last couple of years those high coupon, developed market currencies like Australian dollars, while still popular, have lost some of their demand in favour of emerging market currencies such as Brazilian real, Turkish lira and Mexican pesos.

The World Bank supported Japan by providing financing and technical expertise for reconstruction in many key industries in Japan after World War Two; now, instead of the World Bank being a source of funding for Japan, Japan has become a source of funds for the World Bank.

On the institutional side, whether in euros, US dollars, Australian or New Zealand dollars, or even in Scandinavian currencies, we have seen Japanese investors participating in our bonds. In the Kangaroo and Kauri bond market we have seen huge participation from Japanese institutional buyers.

N’Sele: Japanese investors play an important role and are key participants in our US dollar benchmarks, kangaroo bonds, private placements and uridashi trades. The Australian dollar, for example has been, for at least three years, the African Development Bank’s second funding currency. Japanese investors and life insurance companies have been critical to this growth and are by far the largest buyers of our long-dated A$.

Outside of kangaroos, they have been active in structured products linked to higher yielding currencies. We receive inquiries out of Japan from both institutional and retail investors, for structured notes denominated in Australian dollars, in Brazilian real, Mexican pesos, New Zealand dollars and South African rand, all of which we are able to accommodate and swap back into our disbursement currencies. We also have seen continued demand from Japanese investors for AfDB green bonds and other SRI themes such as water, education, food security and infrastructure.

So in total, what proportion of your overall funding comes from japan?

N’Sele: In recent years it has ranged from 12% to as high as 35%.

Dhawan: While there is some variation depending on market conditions, Japanese placement has, during the last five years, been steady at about 10-15% per year. It would be reasonable to expect similar contributions going forward.

Dore: ‎Something like a quarter across the various products. It can vary. I can give you the example of our last Australian dollar benchmark transaction. It was a dual tranche issue. One tranche had a five year maturity and Japanese participation of less than 20%; the other was an 11 year bond and Japanese investors accounted for about 60%. It depends on the interest rate cycle. You have two main groups: institutional investors like asset managers who are buying for their investment trust products, looking primarily at absolute yields. Those investors are looking for products in the longer end of the curve given the current low interest rate environment. Then there are other institutional investors who are more focused on relative spreads. Therefore you would see differences in behavior from those two investor groups when it comes to product types and maturities.

Klimaszewski: Although funding in yen is not that significant compared to local currency, euros or US dollars, Japanese investors are well visible as holders of our local currency debt. The total value of PLN bonds held by Japanese investors is higher than the value of our bonds issued in yen, as of the end of June.

De Ruijter: Historically, around 25% of our funding programme. But at the moment it’s more towards 15%. That still works for us, but we are keen to involve again the yen investors that cannot take other currencies.

GC: To do that, are you prepared to compromise – to pay a bit more to keep those investors involved?

De Ruijter: We are prepared to do that, and did so in 2012. We have been looking at it this year but the gap is so wide it’s just not feasible.

GC: Let me ask the bankers what patterns they see in samurai issuance.

Vince Purton, Daiwa: We are seeing a significant increase in volumes of issuance in the samurai space. In calendar 2013, we saw a total volume of about Y1.7 trillion; already this year [interview took place at the end of August] we are at Y1.8 trillion.  The pipeline contains a sufficient number of mandated deals to lead us to expect very healthy supply from September into December; at current rates the market could top Y2.5 trillion, which would be the highest level for a significant number of years and the third-highest in the 44-year history of the market. The combination of Abenomics, reduced competing domestic supply, an improved basis swap cost and investors’ search for yield have worked together to increase demand, lengthen tenors and extend appetite for the entire range of investment grade credits from AAA to BBB. That applies for financials but also SSA names – including the first supranational for a couple of years and a debut credit from France – and corporates.

Amongst the sovereigns – defined in broad Japanese terms, which includes those with a sovereign ownership or guarantee – we had got used to seeing four or five deals a year in recent times, but we are expecting double digit numbers in 2014.

Who is issuing?

Purton: We are seeing a healthy mix of familiar and debut names from the sovereign universe. This year we’ve seen Mexico coming back to the market with a very successful issue, and significantly without the JBIC support they were using in the recent past, and we’ve seen Korean issuers in a prominent position. An interesting return after an absence of several years was ICO from Spain, the first Spanish samurai for five years, and the first (and so far only) retail samurai of 2014, sole led by Daiwa. There could be two or three sovereign samurais using a JBIC guarantee in the next few months, and also a couple of other names too. The appeal hasn’t changed: diversifying the investor base, hopefully with a neutral cost position.

Steve Apted, SMBC Nikko: For high-grade issuers, samurais are not so price competitive. The only SSAs or sovereigns we see in the segment tend to be from emerging regions like Mexico; or Tunisia, for example, who is looking to conduct an exploratory road show in Tokyo. They have to have slightly more yield on offer.

Sam Amalou, SMBC Nikko: CDC was really the only high grade SSA to access the market this year, and their strategic approach focused on longer dates, with a cost differential of less than 20 bps. On the other hand, they managed to achieve one of the tightest spread levels ever achieved in yen: through the yen swap offer rate.

And on the non-yen side?

Apted: We have seen quite large and persistent swings into non-yen assets. We have seen investors looking at dollars, euro, sterling and Australian dollars, participating in both publicly offered benchmarks and private placements.

Purton: There is growing diversity in terms of the Japanese investor base looking at international credits in non-yen. There is a very significant Japanese backstop for the deals we bring in Australian dollars, for example , and selectively on USD trades too – including a couple of SRI deals that we have led recently. There is a significant increase in the volume of inquiries from Tokyo, with new investors coming on board as well as traditional investors.

GC: How has Abenomics changed the funding opportunities for you in Japan?

Powell: Initially we saw a retracement of a lot of the asset management community from some of the higher yielding currencies like Australian dollars, New Zealand dollars, Turkish lira and Brazilian real. It was a dual-pronged effect of Abenomics and the tapering announcement, which came very close together. So we did see an impact, but it was reasonably short-lived. There was a lot of talk about a reweighting from yen to other currencies from some of the larger public institutions, but for us, it didn’t really materialise. It hasn’t had a massive impact on our programme.

One aspect is that there was a massive spike in the Nikkei, which had a big impact on investors looking at Nikkei-linked bond issuance – a big part of the uridashi market. We saw a shift where retail investors, rather than just getting their exposure in fixed income, were taking it directly in equity. That was a reflected in smaller sizes in equity-linked bond transactions in the uridashi space.

Dore: ‎Any policy that impacts the behaviour of the investor base will also have an impact on the funding we can raise in that market. Japanese retail investors have a huge amount of savings and are getting very low interest rates in yen on those deposits. Over the last few years as rates have gone lower even in other currencies too, those investors have started to diversify into other products and credits.‎

Abenomics I believe may have had a positive impact on the equity market.  We saw an increase in demand for equity-linked products.

Basically we continue to be able to raise funds in the Japanese markets at cost effective levels. The product mix changes depending on the low or high interest rate cycle, and other macro economic factors.  Equally, we have seen an increase in uridashi funding over the last year or so, and one could attribute that to a number of factors, including the upbeat expectations people had going into the beginning of the year. It will be interesting, as I go back and meet investors, to see if there has been a change in sentiment between January and now.

N’Sele: We haven’t seen a shift in the types of issues we place into Japan since Abenomics. What we’ve seen in general is interest in emerging market currencies. We had that prior to Abenomics, but there has been a definite spike in equity-linked products following the policies set forward by Japan and the accompanying equity rally. But we have not really capitalized on this given that most of investors’ demand has been for equity-linked notes with no principal protection.

Klimaszewski: We have not seen a big impact on our funding in yen. In general, there are investors who like our credit, and they are steadily active when we tap the market. Due to the low yield environment in Japan, Japanese investors are looking more favourably for foreign issuers. However, demand is locked in the short and medium term maturities.

Abenomics has had a big impact on the flows of Japanese investment into our local currency market. Thus, despite the yields on POLGBs hitting record low levels across the curve, they still look to be very attractive compared to opportunities in yen.

Dhawan: While Abenomics has received a lot of coverage and, indeed, is contributing to visible change in Japanese economic variables, in practice it has had limited impact on investor behaviour in relation to our funding programme.

De Ruijter: It’s hard to say. The one thing that you do see is clearly there is appetite from Japanese investors for non-Japanese borrowers, considering the competition that is there for Japanese assets. For FMO, we haven’t seen a lot of consequences from Abenomics: demand from Japan is strong for a name like ours, but then we haven’t been able to make it work, other than in kangaroo issues.

Bogdan, as a frequent issuer in Japan with a strong following, you have never needed the GATE programme of a JBIC guarantee. What does it save you to be able to go direct without any institutional guarantee?

Klimaszewski: Our presence in the Japanese market dates back to the early 2000s. We have issued 15 samurai series so far. For a couple of years now we have been, so to speak, in a full cycle: that is, we are issuing and redeeming bonds regularly. We haven’t had problems with allocation or achieving satisfactory pricing. Having such a good track record, supported by our intensive IR exercises, it seemed natural for us that we didn’t need to use the JBIC guarantee schemes to access the market. It obviously saves us the time required for issuance preparation, and allows for more flexibility when making the decision to enter the market.

You have always opted for samurais over other fundraising methods, but have also tried EMTN. Why do you prefer samurais and when will you use other structures?

Klimaszewski: In our issuance strategy, we try to be consistent, stable and predictable. We offered samurais, received very positive feedback, and followed this path. The few EMTNs we have done in yen were usually based on reverse inquiry. We are not excluding, but also not considering, any other structures at the moment. We see no need to change something that works well.

Vince, at what credit rating does a JBIC guarantee make sense for a sovereign?

Purton: Well, these are private placements with no rating attached, but if you look at who has issued, most but not all of the credits have had at least one sub-investment grade rating.  There have nonetheless also been a couple of solid investment grade credits. Qatar Petroleum is the most obvious example: there was a view that the JBIC support has specific value here in opening up demand for a debut trade from a debut region. And Mexico too.

But it is true that most other issuers have benefitted from the JBIC support in order to access the market as debut names or as issuers returning after a long absence. And, beside market access , the other huge benefit of the JBIC support concerns the maturity on offer. Deals with JBIC support all tend to be 10 years; if you take out JBIC support the bulk of interest for conventional samurais , regardless of issuer name or type , is at three and five years , with smaller reverse enquiry appetite available on an ad hoc basis at 10 years and beyond, as successfully tapped by Mexico.

What patterns are you seeing in appetite for uridashi structures?

Powell: It hasn’t developed that much. We have seen it move a little from being a solely Nikkei or equity-linked market to one where the coupon is linked to two indices rather than one – Nikkei and euro stocks, or Nikkei and S&P. We are also seeing some dual monitor structures such as an FX and equity hybrid, where the coupon and redemption might be linked to the Nikkei and the BRL-JPY exchange rate, for example. That’s something we’re starting to see a lot of.

N’Sele: The AfDB has been an active player in uridashis for more than 10 years and have a very good relationship with Japanese retail investors. In terms of currencies, investors’ appetite seems to be geared towards the higher yielding emerging markets currencies such as Brazilian Real, Mexican Pesos or Turkish Lira. PRDC [power reverse dual currency] and notes linked to indices have risen in popularity specifically in private placements for institutional investors, but for uridashis we have been executing plain vanilla issues.

Dhawan: In recent years, the uridashi market has seen quite a radical shift in the kind of products that flow through. Nevertheless, the EIB issued a three-tranche uridashi linked to BRL, AUD and TRY earlier this year. Short lock-out callables currency/index/equity-linked uridashis have now replaced traditional plain vanilla structures.

De Ruijter: FMO hasn’t been active in the uridashi market, which had to do with our banking licences, but we have early this year received authorization from our regulator, the Dutch Central Bank, to start issuing in retail format. We will be exploring opportunities in uridashi, but it’s an early stage for us.

What structures are you likely to look at?

De Ruijter: Our preference would be strongly for the main currencies: euros, dollars or yen obviously. In terms of structures, FMO doesn’t really do any structured funding so it would need to be plain vanilla.

How about SRI bonds?

Powell: We do, and we would like to do more. We have done a bond based on the Banking on Women programme that we established last year. The uridashi market is one where you can bring innovation: there’s good interest from retail investors for this kind of product and we will be looking to bring a new SRI product in the fall of this year, as well as the occasional green bond. We’ve been issuing those since 2010: not huge volumes, but they do come along from time to time.

Things like Banking on Women – these are bond issues linked to specific portfolios within the IFC. We are able to raise funds and ring fence them to disperse to eligible projects within those specific programmes.

Dore: Japan has always been interested in SRI products. Because of the overall mandate of the World Bank and our policies, there has always been great interest in our bonds from SRI-minded investors. The purpose of the World Bank is appealing also to retail investors. We introduced our green bond programme in 2008, but long before that uridashi bonds were associated with SRI. Our ‎ green bond programme has raised about $6.5 billion since 2008, and about 20% of that has been from Japanese retail and institutional investors.

We also have a partnership with Nikko AM that offers investment trust funds in Japan that invest in our‎ bonds in various currencies, chosen by Nikko AM. There’s a fund focused on green bonds and also another fund – called the World Supporter Fund – that invests in all World Bank bonds. Those funds are specifically for Japanese investors.

N’Sele: We’ve seen renewed interest in clean energy, education, green bonds and water since 2009-10. This year we have been able to introduce a new theme, food security, and launched an infrastructure bond as well. There is very strong interest out of Japan for structures or bonds that give investors good yield while having a socially responsible feature. We are also seeing some institutional investors participating in that market: the infrastructure bond we launched a few months back was mainly driven by institutional demand.

Dhawan: The EIB only offers SRI paper in the form of Climate Awareness bonds. The bank is the largest green bond issuer, with a gross issuance of Eu5.7 billion and a record volume of Eu2.7 billion year to date in six different currencies. One of the bonds we issued this year was a green samurai bond which was a real success. While this green samurai bond was placed with institutional investors, we have previously issued uridashi Climate Awareness bonds in AUD, BRL, TRT and ZAR.

De Ruijter: SRI could be a theme through which we can make the main currencies work in Japan. Japanese investors are very much interested in investing in specific themes, and that helps a lot in the uridashi market.

Is the interest in SRI structures a consequence of the nuclear energy problems that followed the tsunami?

N’Sele: The interest for socially responsible bond or themed bond was well before the unfortunate events in Japan. In fact, there was reduced interest for that type of issue immediately afterwards, but there has been a revival of themed bonds in the past two years.

Who buys those, just retail?

Powell: A little bit of institutional but the majority is retail. We’ve done some private placements in green bond format to institutional investors – we did one last week in fact, a 10-year dollar private placement to an institutional green bond buyer – but in terms of uridashi, it tends to be retail.

How might the uridashi market develop from here?

Powell: We would like to see more slightly esoteric currencies. We are surprised we don’t see any RMB-denominated uridashi, and we don’t see much in the larger African currencies either. It would be good to see a little bit more diversity in the currencies offered. Liquidity is key to getting those transactions off the ground. The main flows are still in Australian dollars, Turkish lira, Mexican pesos and Brazilian real: they have been the bread and butter uridashi currencies.

Purton: There is a tiny new section of the market that falls in between uridashis and samurais. The European Investment Bank did a structured samurai earlier this year. You see these supranational structured Samurais once every couple of years but this one was notable in that it was the first SRI samurai: a climate awareness bond, with a 25 year maturity. That shows that the SRI theme has moved from being a purely uridashi and retail product, and now has at least a toehold in the institutional samurai market.

GC: What’s your approach to investor relations?

Powell: Starting from July 1 last year we have had somebody permanently based on the ground in Tokyo. He is very much involved in the investor relations side and is able to execute uridashi transactions for us. Having him there is a massive help to our programme in Japan.

Before he was there we would go to Japan a couple of times a year, and we will still be there a week a year or more in order to see some of the big investors and dealers.

Andrea, how often do you visit?

Dore: Twice a year is typical, but because Japan is such an important market for us we have an office in Tokyo. That office includes colleagues who cover purely investor relations on the funding side. It is our only permanent investor relations office outside Washington.

Klimaszewski: We tend to visit Japanese investors once a year, with a high-level delegation from the Ministry of Finance and National Bank of Poland traveling to Tokyo and sometimes other cities. We have always paid a lot of attention to keeping direct contact with Japanese investors, and it has been so for over a decade now. Nowadays, Japanese investors are coming to see us in Warsaw more and more often. This is probably the result of huge appetite from Japanese accounts for our credit, proven by the high level of their investment not only in our samurais but, even higher, in our POLGBs.

Dhawan: Due to the strategic importance of Japan, the EIB regularly visits Japan and has done so for many years. As a result, investors are well-informed about the EIB and our credit. A key to our success in Japan is probably that we’re a long-term high grade borrower with regular funding needs which suit Japanese investors well.

De Ruijter: We visit once a year and spend a couple of days in the Tokyo area. We haven’t really been out to the regions; our samurai transactions have generally been limited to Y20 billion, and for that we see more than enough demand in the Tokyo area. If at some point we were looking for larger transactions, we would start to go more into the regions.

GC: What’s the key to successful marketing?

De Ruijter: Building up the track record, and working with banks that know how to intermediate between ourselves and the Japanese investors.

Powell: Obviously making sure everything is in the Japanese language; that continuity between the information in English and Japanese is absolutely key. Having a person there really is an important factor so that institutions can pick up the phone and talk to us in their time zone.

N’Sele: We visit Japan at least twice a year and meet with institutional accounts, uridashi houses and dealers. We have a Japanese language web site for investors to read up on our latest activities, and also have an office in Tokyo which receives inquiries from investors interested in the African Development Bank and Africa in general. Let me also highlight that the mandate of the African Development Bank – to combat poverty and promote sustainable social and economic development in Africa – is of interest to Japanese investors. During our meetings with investors, many of the questions asked revolve around the type of projects that we finance and their impact on the African continent. Our strong credit credentials, our financial performance, our relevance and impact on Africa does appeal to the Japanese investor base. Given the importance of Japan for our funding program, we have elected to be rated by Japan Credit Rating agency (JCR) since 1998.

Dore: I would say it’s beneficial to have a presence there so it is easy for investors to reach out to someone in that timezone. Success in Japan is something that has to be built over a long period of time;  it’s not‎ something where you just open an office in Japan and will instantly be successful. It is built over time, with a level of trust and partnership, not just through issuing bonds. We have built our partnership with the Japanese community over decades.‎

GC: Does investor appetite vary between Tokyo and the regional investors?

Dore: ‎I have been fortunate that our relationship in Japan doesn’t just stop in Tokyo, it exists throughout. You have a very strong regional component in Japan. If you go to areas such as Chiba, yes you will see the big security firms like Daiwa but you will also see a huge network of Chiba Bank branches. Same as in Fukuoka, Bank of Fukuoka. In Yokohama, Bank of Yokohama. Those regional banks are very important.‎

There are differences in the products, for historic reasons. Prior to deregulation in 2007, banks’ focus was on savings accounts, before the focus moved to investment trusts. So the role of regional banks selling bonds is much lower than in the bigger cities where you have a concentration of securities firms. So in regional areas you see a higher distribution of things like investment trusts rather than pure uridashi bonds.

Also, because the asset managers in the regions are buying products for the investment trusts, you will find that they buy more yen products rather than Australian or New Zealand dollars: they are more domestically-focused than they are in areas such as Tokyo or Osaka.

Powell: We’re starting to see more of the regional banks buying dollars and euros – not in massive scale, but they do pop up in order books more frequently. Where we have connections with retail, it’s through retail brokerages and the uridashi markets – that’s our strongest connection to regional Japan. We’re yet to see regional banks really step up and participate in multicurrency stuff; we mostly see them in dollars.

Dhawan: We see certain differences regarding size, tenor, currency and structure. For example, most of our benchmark transactions are placed with Tokyo institutional accounts while most of our longer-dated PRDCs are placed with regional institutional accounts.

Klimaszewski: Regional institutional accounts are usually present in order books for our samurai offerings, but the momentum is generated by the biggest Tokyo-based investors.

So what do the bankers think is the best way to seek and use regional support?

Purton: You build up a core support and understanding from the Tokyo accounts, and then use that as a foundation for getting more from the region. It would be highly unusual to do a regionally-targeted samurai, but increasingly you don’t see Tokyo-centric deals either. You will often find very marked regional support; although individual regional orders tend to be a lot smaller in size , the number of orders can be huge so that total regional placement can sometimes get close to matching or even exceeding Tokyo ones.

Amalou: The trend has been to approach the investor base in Japan with more frequency: those that are dedicated and committed to a Japan strategy are not only travelling to Japan more often, but looking to conduct more granular road showing exercises where regional road shows are almost the norm. Tokyo is still clearly the core driver, but in most cases 20 to 25% of demand is coming out of the regions.