Global Capital Roundtable: Asia Pacific FIG Borrowers in the Japanese Capital Markets

Global Capital – IMF editions, October 2015

Korean banks have pulled back somewhat from the samurai market, as funding costs have moved against them, but some other names have stepped in to the breach. Australian banks are a key fixture in the samurai markets, while the arrival of Maybank this year gives a pointer to future issuance. Asia Pacific FIG issuers are also proving instrumental in the steady development of the Pro-bond market. Volatility in China, however, isn’t helping anybody.

Participants

Patrick Bryant, Head of Group Funding, Commonwealth Bank of Australia, Sydney

Christopher Cornwell, Group Funding, ANZ, Melbourne

Hiroyuki Kinoshita, Head of Global Fixed Income Capital Markets, SMBC Nikko, Tokyo

Odie Lee Yih Hwan, Group Corporate Treasurer, Maybank, Malaysia/Singapore

George Skiadopoulos, Head of Debt Capital Markets, Daiwa Capital Markets Australia

Sun Woo Kim, Head of Investor Relations, Global Funding Tem II, KDB Bank, Seoul

Hee-Sung Yoon, Treasurer, the Export-Import Bank of Korea (Kexim), Seoul

Eva Zileli, Head of Group Funding, National Australia Bank, Melbourne

Moderator: Chris Wright, Global Capital

First, I’d like the bankers to set the scene: Kinoshita-san for Asian issuers, George for Australians. Kinoshita-san, what trends are we seeing from Asian FIG borrowers?

Hiroyuki Kinoshita, SMBC Nikko: In recent years, issuance from Asia has actually been very limited. Korean borrowers are regular issuers, tapping the market frequently, but in the fiscal year for 2014, Koreans represented only 2% of the samurai market – and that was the only issuance from Asian countries. Korea had been 12% in fiscal 2013, so it was a dramatic decrease. In 2014 European borrowers were 75% of the market, followed by 12% from the US and 6% from Australia.

However, this fiscal year, Maybank has issued in the samurai market for the very first time in April, so we hope this will open the market for Asian borrowers going forward. That issue was Y18.5 billion for three years and Y12.8 billion for five, a total of Y31.3 billion, which is relatively smaller than other samurai borrowers, but it sets a very good example for other Asian issuers.  Also, although it is not a public offer samurai bond or from FIG, the Republic of Indonesia launched a private placement samurai. That was a Y100 billion issue of which Y55 billion was JBIC guaranteed and the rest unguaranteed. We saw strong interest from investors in this credit and this name, and we saw new investors in the unguaranteed bonds. So something is developing in the samurai market with Asian borrowers, and that means this is a very important year.

We hope we will see more borrowers tapping the yen market, but on the other hand, market conditions are dramatically changing. Market volatility has become considerable worse in August and that could be affecting borrowers from emerging markets considering tapping the samurai market.

George, what are we seeing in terms of Australian issuance in the Japanese markets?

George Skiadopoulos, Daiwa: The Australian major banks have been key borrowers in samurai in recent years, and continue to issue in this market where relative value compared to other offshore markets is competitive. Ideally each of the four major banks would like to issue at least annually in samurai, but pricing and market windows need to compare against other offshore markets from a relative value perspective.

A wide JPY/USD basis swap has generally been a concern to the Australian banks. We are constantly monitoring the market for opportunities in order to issue in this market and satisfy investor demand.

Most recently, in July, ANZ priced a 5-year fixed JPY80bn transaction that was oversubscribed with excellent participation from core accounts. At the time, volatile market conditions surrounding Greece and its creditors had created a challenging economic environment which the joint lead managers and ANZ followed closely. Despite this and very tight spreads, robust demand from Japanese investors for Australian major bank paper allowed ANZ to price an excellent trade. This was a prime example of the resilience of the Japanese investor base in difficult market conditions. From a relative value perspective the pricing was very competitive to other global markets.

Let’s start with the Australians. Eva, how do the Japanese markets fit in to NAB’s funding strategy?

Eva Zileli, NAB: Predominantly it’s another source of funding: the opportunity to diversify our funding sources with a different class of investors outside of our core funding markets of US, Europe and Australia.

How does pricing compare to those markets?

Zileli: We track it weekly, and we decide to access the market when the differential with other offshore funding is within our range. We look at it in terms of three-month US dollar libor basis. At the moment five years is stacking up well, as well as three years.

Tell us about your bond in January.

Zileli: That was in the second quarter of our funding year – our year end is September 30 – and in the first quarter we had done a Basel 3-euro tier two and a dollar trade. We then looked at other opportunities including Japan, and the samurai market presented a good opportunity. The pricing between other senior deals and samurais had converged to a point where, economically, it made sense to issue, so we did.

What was the investor response?

Zileli: Very strong. We were surprised on the upside. We had a three day bookbuild process and the order book was completed at Y100 billion, towards the upper end of expectations. It was good for us to issue at such a tight spread in yen. Our issuance decision was influenced by the all-in cost after hedging, and going into the trade, we assessed it was a good option for us.

ANZ launched a bond this year after a long absence. What led to this issue?

Christopher Cornwell, ANZ: It was a deal we hadn’t done for three and a half years. We were keen to keep our line out there and maintain ANZ’s presence in the Japanese markets and were conscious that it took a long time for the economics to work for us, so when things started to look like they were coming together it was very encouraging. Prior to launching we had been monitoring the basis swap, which was staying relatively stable around the time that US credit spreads were also drifting out wider, on the back of Greece and China related concerns, which meant that the Japanese market being more defensive on a relative basis looked appealing. So we started the process of lining up documents.

We always thought the trade was there for a while because we hadn’t been in the market for so long. So when we pulled the pin and the basis stayed steady and the pricing worked out, it was very rewarding that the investors all came in as well.

So where does the yen fit in to ANZ’s overall funding strategy?

We’d like to do something at least annually and maintain a stable line out there for our investors, should it also make sense for us. We did the samurai this year, last year we did a euroyen. After three and a half years without a samurai it was good to get it out there, even more so when the economics of the trade all came together as well.

Patrick, we haven’t seen CBA in the market since 2014. Why not?

Patrick Bryant, Commonwealth Bank of Australia: Generally speaking, we think it’s been too expensive against other markets.

We always look at cost in a couple of ways, both on a libor basis – we’re a libor funder – and on a swapped Aussie dollar basis. On both of those comparisons, there’s been other, cheaper markets for us to use. Every week we check the pricing on the Japanese markets, but it hasn’t really hit out targets.

Do you have much outstanding in yen?

Bryant: We do have a couple of samurais outstanding and some private placements.

Let’s turn to the Korean issuers, long-standing fixtures in the samurai market. What do the Japanese markets offer KDB?

Sun Woo Kim, KDB: Even though we sense that the global low interest rate environment has contributed to reducing the JPY loan demand of Korean domestic corporate in recent years, the Japanese market remains one of the most important funding components in our foreign currency profile, along with the other G3 currencies, US dollar and the euro markets. This is mainly because we focus on diversifying our overall funding mix in order to avoid a heavy concentration on a single currency, so we can maintain stable liquidity. The Japanese market remains as a good alternative to the US and euro market as it offers us a chance to reach out to a broad range of investor bases.

Where does yen funding – in any structure – fit in to your overall funding needs?

Kim: We may fund in yen when there are some funding needs from corporate customers, but basically we do not have any preference in a certain market or currency. We always look to diversify into different funding bases, including the Japanese and other markets, in order to find out the best opportunities that match our funding needs.

We have not seen KDB launch a samurai issue since 2014. Why have you been absent, and do you plan to come back?

Kim: Our last issuance of samurai bonds was ¥34.9bn in two and three year tranches in October 2014. Currently, our foreign currency demands are predominantly in US dollars. And therefore we would have to swap the issuance amount into US dollars. We are monitoring the overall samurai market conditions, including the coupon level, investor appetite and swap movements. We are ready to tap into the market at any point, as soon as we see a favorable opportunity. We have been a regular issuer in the samurai bond market and will remain so, due to the importance of the Japanese yen market.

For you, how does yen price competitiveness compare to other currencies?

Kim: When it comes to the price, we look carefully at our secondary US dollar spreads as our reference point. Because of the current unfavourable basis swap market, we do not see much of yen price competitiveness at the moment. Recently, we have seen niche market opportunities in offshore RMB and Singapore dollar markets, but since bond market conditions constantly change, we are on full watch.

Kexim has a long track record in the samurai and uridashi markets. What do the Japanese markets offer you?

Hee-sung Yoon, Export-Import Bank of Korea: KEXIM issued the largest samurai bond among Korean issuers (Y100 billion) in 2012. We also printed a sizable samurai bond in 2014.

The Japanese capital markets provide various funding tools such as samurai bonds, uridashi bonds and bank loans. Liquidity is abundant since the BOJ started its quantitative easing policy, and investors’ demands remain robust. Japanese investors seek a higher yield than domestic bonds due to the low interest rate.

And where does yen funding, in all structures, fit in to your overall funding needs?

Yoon: We swap most of the proceeds into US dollars when we issue foreign bonds to match the currency of our assets. There is a chance to do yen funding without swap transactions, since we have yen-denominated assets, although the amount is small. We are closely monitoring the market at the moment to grab the right window.

How does price competitiveness look now?

Yoon: It is less competitive compared to US dollar funding costs, as the yen-dollar swap basis is constantly declining. But it is definitely competitive if an issuer needs yen funding.

Why were Korean issuers less active in 2014-15 than in previous years?

Kinoshita: Korean borrowers are well-diversified in their issuance. They issue domestically, they issue in dollars, they look at the euro market, and lots of markets other than yen. So when they issue samurai bonds they compare the conditions including all-in cost with other competing markets. That cost needs to be competitive compared to other markets such as dollars. If they think the dollar market offers them cheaper funding costs, they should see less reason to issue samurai bonds. In terms of the cost in dollars, the dollar-yen basis cost would be a key factor to consider, and this has been moving to a negative trend. That also has a negative impact on Korean borrowers tapping the samurai market.

Odie, where do the Japanese markets fit into Maybank’s funding needs?

Odie Lee, Maybank: Japan was the first stop for us in expanding out investor base. As the most developed bond market in Asia, it made perfect sense for Maybank to develop a following there.

Your pro-bond transaction in May 2014 was something of a landmark. What made you choose to issue that deal?

Lee: The ProBond format was a very attractive avenue for Maybank to showcase as the first southeast Asian issuer. What attracted us in particular was the short time it took to launch the deal.

That is what pro-bond is known for, its relative ease of its documentation. Was that your experience of launching the deal?

Lee: The documentation was easy for us. We were pleasantly surprised with the relatively easy documentation requirements.

Critics of pro-bond say it does not reach such a wide investor base, particularly because its bonds are not included within indices. What was your experience?

Lee: While the investor base is relatively smaller, there is keen interest from investors in exploring the probond format. Having the bonds included [in an index] would be a big step forward.

One year later, you launched a samurai. Why did you choose to do this and not another pro-bond?

Lee: We actually executed a subsequent pro-bond issue in August 2014. We felt that, with two issuances in probond for Maybank, it was time to look into the samurai, as it offers a more diversified pool of investors.

Was the effort in terms of documentation considerably higher for the samurai than the pro-bond? And was it worth it?

Lee: Yes, unfortunately, documentation requirements are considerably higher for the samurai. We hope that over time the requirements can be simplified further. However, we still think it was worth our while as it is a very developed market and it fits in nicely to our strategy.

Did the samurai attract a significantly different investor base than your pro-bond?

Lee: Yes it did. The investor pool is vastly different from the pro-bond.

George, we have also seen Macquarie issue in pro-bond. What appetite do you see for that new market from Australia?

More Australian borrowers are looking to diversify their funding sources by issuing bonds in Japan. For borrowers with smaller funding tasks the Tokyo Pro Bond market allows access to key institutional investors in a more efficient manner. In March, we saw Macquarie Bank issue its debut Tokyo Pro Bond in Japan, pricing a JPY34.1bn two tranche transaction in both three and five years. The success of this transaction, as the first Pro Bond issued by a borrower from this region, received the attention of other similarly rated borrowers in Australia. More local companies will turn to Japan’s debt markets in the next twelve months. However, there are always company and deal specific considerations as to what market offers the best opportunities.

Patrick, would pro-bond ever be of interest to you?

Bryant: Potentially, yes, we could look at that.

How do the relative merits stack up compared to a samurai?

Bryant: The pricing generally falls out pretty much the same, you just get less volume (in pro-bond) and the documentation process is a bit easier.

Cornwell: We haven’t done a pro-bond, but it seems a bit more of a streamlined version of a samurai. It’s quite labour-intensive to do a launch of a proper samurai: there’s about a month of preparation of all the legal and auxiliary documents required, many of which needing to be translated. If the pro-bond format can generate sufficient investor demand and it’s also less onerous on the issuer then it’s definitely worth doing. However it comes down to investor preferences, and we find they are chasing samurai more than anything. We will continue to follow that demand, but we’re open to pro-bond should that call out our name.

Why do you think investors continue to prefer samurai?

Cornwell: Probably just because that’s what they’re used to. That’s what’s been in their market for the longest time, and it’s listed in their indices, which I believe is required to support a lot of the investor mandates. They may also move a little slower than some other parts of the world and are more traditional in the forms of funding they buy so changing the mandate as to what they can invest in may be a bit challenging.

What about those banks that have already issued samurai? NAB?

Zileli: I think the NAB samurai programme meets our objectives in terms of investor participation and size. Despite recent growth, the pro-bond market is substantially smaller than the samurai market, and for NAB it’s not going to be first choice. But, potentially, one of our subsidiaries like BNZ could look at it.

KDB?

Kim: The pro-bond format offers some advantages, including disclosure in English and somewhat simplified issuance procedures. However, we are not actively considering reaching out to the pro-bond market at the moment because we think that the pro-bond market has a thinner investor base than that of the samurai market, and it still lacks pricing competitiveness.

Yoon: Pro-bond is not attractive for us, because we are already a well-known frequent issuer in the samurai bond market utilizing our yen shelf programme. We hope to diversify our investor base by accommodating the various needs of Japanese investors.

Kinoshita: The pro-bond market has been developing well in recent years. At the beginning ING was the only issuer, but in recent years we have seen active issuance from new borrowers, with Maybank and Macquarie issuing. The investor base is broadening. We see granular orders when we manage pro-bond issues now as more borrowers come in to the market. Although the market is still developing, it is growing, with better supply and demand.

A key point for issuers to consider in the Tokyo Pro-Bond market would be whether or not their financial disclosures are compliant with eligible accounting standards that are approved by the Tokyo Pro-bond market. It is only this year that the market approved accounting standards for Australia: until then, Australian borrowers were restricted from issuing pro-bonds. For Asian borrowers, the accounting standards that are approved by the Pro-bond market are Hong Kong, Singapore, Korea, Taiwan and Malaysia. And if borrowers disclose their information based on IFRS, they can use that. Generally speaking, though, we need to see more available accounting standards if we would like to see more borrowers accessing the pro-bond market.

Do you think pro-bonds will appear in major indices like Nomura BPI?

Kinoshita: That has always been a major discussion point. Nomura BPI is the most popular index in Japan for yen bonds. They have said the bonds issued in the Tokyo Pro-Bond market would not be included in the index as they judge the bonds would not be public offering bonds, which is a condition for the index.  At the same time, they have said that they would like to monitor market developments such as outstanding amounts, which, some people say, indicate future inclusion in the index.  However, so far, we have not seen any hint that they would open up the index for Pro-bonds.

What’s the best tenor in the samurai market?

Cornwell: Probably five years. There’s a mixture of what works for investors and what’s good for the issuer, normally it’s threes and fives or possibly tens as well. Three and ten years was a bit expensive when we issued, five was at that sweet spot for both ANZ and what best met investor demands. One other thing to note is that there’s wasn’t a lot of demand in the floating rate tranche, it now just appears to be a fixed rate dominated market, and that’s something that has changed over time.

What do you see in terms of movements in the swap?

Kim: The after-swap price level seems to be less attractive at the moment compared to last year, making us hesitate to decide to revisit the market. We are now closely monitoring the market, since it changes on a daily basis.

Yoon: The yen-dollar basis swap is showing a downward trend this year. It made the Japanese market less attractive for the issuers who need to swap the proceeds into dollars. Current market conditions are favourable for those who need yen, because the funding price in yen remains low.

Cornwell: It seems to go against you whenever you look at the market and want to do something there! It’s been harder and harder over the last few years. Mid-2014 was when it was the most compelling, though at that time US credit spreads were also at their most compressed, so on a relative basis it still didn’t make sense to issue. After that, even though the swap has moved out 30-odd points from mid-2014, credit spreads in the US have moved out even more, so looking at it through that lens it’s decent value at the moment for an issuer. That’s what the Europeans are seeing as well, and in particular when they couldn’t issue in Europe [during the Greek crisis].

Zileli: The swap can move around, to the extent that sometimes the trades no longer work for us – or at least that in terms of the way we look at the trade on an all-in basis, it’s not compelling. While we were in the market in January with our trade, the swap pricing did work in our favour, but looking back, a couple of weeks later swaps had widened to make it less compelling than when we had issued. Right now, the pricing is starting to stack up again.

Will we see you again this year?

Zileli: Our financial year ends on September 30 and we are pretty well placed for our current year. We have done quite a lot of large benchmark issues, including a US$2.5 billion trade, and we are quite well funded. It is something we would look at, but whether it would be this financial year or not will depend on a number of factors.

How about ANZ?

Cornwell: If everything stays the same and we’ve got an ongoing funding requirement, hopefully we will do something next year. We will look at the economics and what we hear from investors. At the moment it looks good, and we are keen to keep our name out there, but it also depends on the fickleness of the basis swap and the relativities of other markets at the time.

Is Japan strongly differentiated from other markets?

Cornwell: It’s definitely far more defensive than any other market that we’re active in, and it’s comforting to have that. But normally when that’s the case the basis goes against you because everyone sees it and it moves in the same direction, which can be frustrating.

Zileli: It’s probably more that other concerns are front of mind for Japanese investors than are front of mind for European or US investors.  So yes, there is a degree of truth in that statement.

But when the cause of volatility is closer to home – China rather than Greece – how does that affect the market?

Kinoshita: This volatility is caused mainly by China, which gives us a cautious attitude on the whole Asian economy, because many Asian countries – and other countries – have significant exposure to China. Many exporters in emerging markets are dependent on the situation there. When China goes wrong, generally speaking, it has an impact on Asian credit.

Patrick, Do you keep up your marketing there?

Bryant: Yes, we have people who go to Japan every year; some of my colleagues were in Japan on the securitization side a couple of weeks ago, and someone from our IR team goes up regularly as well. We do try to keep a profile there.

The Commonwealth government organized an Aussie day for Japan recently, with the treasurers from all the major Australian banks and their IR people. There was one day for the semis, and another for the banks. We did participate in that.

What’s the key to good investor relations in Japan?

Zileli: It’s similar to any other market. Issuer updates are key, so investors understand your credit story, and are feeling well updated with your plans and your results. As part of our ongoing marketing and roadshow strategy, we meet with Japanese investors on a regular basis, be that in Japan or in Melbourne. We have a number of Japanese investors coming through and meeting NAB’s management and senior bankers.

Kim: We believe that giving proper updates to the investor is one of the most important points to drive success in the issuance market. We are periodically holding roadshows in Japan at least once a year, meeting our key investors who have actively participated in our samurai deals. We also think that regular issuance of samurai bonds is important in order to meet our investors’ expectations, and to keep them familiar with our name.

Lee: The most important ingredient for us is in maintaining regular contacts with the investors. This will allow our investors to develop a better understanding of our strategies over time, as well as providing insights for us on concerns that they have.

How well do Japanese investors understand Malaysia and your credit story?

Lee: As a highly sophisticated pool of investors, the Japanese investor community always had a strong understanding of Malaysia and the Maybank story. We thoroughly enjoyed the discussions on our strategies and had good insights into how the community view Malaysia and Maybank.

Skiadopoulos: We advise Australian issuers to visit Japan in order to establish or enhance relationships with investors in a series of one-on-one meetings. This allows both issuer and investor to give and obtain direct feedback and stimulate discussion for future trade ideas. These non-deal specific roadshows together with private placement EMTN transactions are a good way for issuers to understand the dynamics of the Japanese investor base. It also allows investors to work on their credit submissions in anticipation of a future transaction.

How did ANZ keep its marketing strong in three and a half years out of the samurai market?

Cornwell: We have an annual roadshow to Japan where ANZ’s investor relations team goes over with one of the Japanese banks to keep investors updated on our story. We try to keep that regular contact, which is very important when you are not doing anything in that space for a while.

Yoon: It is recommended to build good relationships between Japanese investors and issuers, for the sake of mutual benefits. If you have regular investor meetings to update investors on the recent status of the issuer, and to respect investor appetite, that will help develop better relationships with them.

Kinoshita-san, even if Asian FIG borrowers aren’t active, do you tell them to keep coming to update investors?

Kinoshita: The important thing is, Japanese investors are very loyal to issuers. Once they have bought an issuer’s credit, they naturally think they would like to be regular buyers in the future. So investors always appreciate issuers coming to Japan, even without transactions: just non-deal roadshows are OK.

Do you see investor types changing?

Kim: The samurai market has been driven by big players: institutional investors with huge appetite. However, due to the low bond market liquidity triggered by the easing program of the Japanese government, the role of regional investors has been growing. We believe that we can draw as much attention as possible when the potential appetite of these regional investors reaches far enough to embrace Korean names.

Yoon: We see more demand from regional investors than in the past. They were not interested in less familiar foreign issuers, but have started to enlarge their range of investment from a couple of years ago, given the low-yield environment. It seems that they prefer well-known or high credit issuers so far.

Zileli: There is a broad spread of people who will buy, but the nature of the yen market is that no name is given on who has actually invested. It’s a bit different in the US, where our deals get name-specific order books. We don’t get that with samurai.

Skiadopoulos: With Abenomics and an ultra-low yield environment we have seen new investors participating in samurai due to the yield pick up over Japanese domestic bonds and are seeing a number of investors increase their participation size on recent samurai transactions. Core investors continue to have strong demand for Australian bonds and we are seeing new names in order books.

Some investors have absolute coupon targets to achieve and have extended their duration longer than 5-years (the traditional core tenor in Samurai) in order to reach their targets.

Kinoshita: Investors for most samurai borrowers are the same: banks, insurance companies, asset management companies and regional banks. However, I would say there are investors who would like to have more exposure to Asian credit. In the last fiscal year we had about 75% issuance from European countries, and there are investors who would like to diversify their portfolio. There should be strong demand for Asian credit.

How about Japanese participation in other paper?

Zileli: We do see Japanese investors in our US dollar trades, our euro trades, and in quite a number of the other trades as well, not just samurais. If you look at our mid-year results, Japanese investors held 10% of the debt portfolio, which makes it a top five location. It has a meaningful impact in terms of the diversification of our investor base. By comparison, 5% of our term debt portfolio was denominated in yen, so that means the balance of Japanese investments are held in other bonds than yen-denominated debt.

Kim: Japanese investors participate in our non-yen currency deals such as global bond issues. However, they seem to focus most on our yen currency deals.

Bryant: It’s improving all the time. We’re finding that Japanese investors are getting more and more interested in non-yen product.

Cornwell: Uridashi appetite is good, though probably a bit more subdued this year than we experienced in previous years. We normally do a couple of trades with each of the big houses, though of late it has died back a bit, as global rates have been lower and retail demand has softened. We have launched in a mixture of currencies. The last one we did, through Nomura, was a USD CMS tranche and an AUD tranche. We’ve also done Turkish lira, South African rand, New Zealand dollars, and Mexican Peso to name a few.  Japanese investors can also participate for big size in targeted USD denominated trades, which we have had a bit of success with in the past.

Lee: Japanese investors have participated in our issuances for some time now. We think the trend will continue, as we can provide an avenue of diversification from their perspective.

Kinoshita: When borrowers issue uridashi bonds, they need to make almost the same documentation as they do for samurai bonds. So the only potential issuers from Asian banks now are Korean samurai issuers and Maybank. In future, we can see those borrowers potentially issuing uridashi to target Japanese retail investors.

What has Abenomics meant for you as an issuer?

Zileli: The impact for us is the signal it gives to Japanese investors that monetary policy will remain accommodative. That gives a favourable backdrop to bond issuers, as it has encouraged Japanese investors to be more interested in credit products, including samurai bonds. We have been issuing since 2007 and have had good acceptance; Abenomics has had a marginal impact, but I don’t think it has been the key driver in, for example, the success of our January samurai.

Kim: Since the Japanese government’s quantitative easing programme measures, the liquidity of the Japanese bond market has steadily fallen, making many JGB investors, including insurance companies and regional banks, more interested in samurai bonds, which offer relatively higher coupons than JGBs.

While the coupon level itself has tightened following the BOJ’s easing program, we assume that the after-swap pricing has become relatively expensive due to the overall weaker yen. Along with the moderate yen demand from the domestic corporate side, the attractiveness of the samurai primary market has been weakened, given the circumstance that we need to swap into US dollar to match the current foreign asset demands.

Yoon: Abenomics played a positive role for yen funding by lowering JGB yields and providing abundant liquidity. As a result, yield-seeking investors in Japan have more interest in samurai bonds than domestic yen bonds. With respect to the size of samurai bond issuance, the weak yen scales the funding down in US dollar terms. It is unfavourable for issuers who have US dollar funding needs.

What’s the outlook for the issuance from the region?

Skiadopoulos: The Japanese investor is quite conservative and traditionally prefers stronger credits. The AA rating of the Australian major banks has been well received by Japanese investors who have become familiar and comfortable with the Australian economy and conservative banking system.

A common theme amongst the Japanese investor base this year has been to increase investment into Samurai and to look further down the credit spectrum in their chase for yield. This has opened up the opportunity for Single A rated borrowers such as Macquarie bank who issued in the Pro Bond market in March. There are a number of new name Australia issuers who could look at similar opportunities going forward.