Global Capital Samurai Issuer Profiles: Maybank, Rabobank, BPCE and Macquarie

Global Capital, IMF editions, October 2015

Maybank

Maybank became the first Asia Pacific issuer to launch a pro-bond in May 2014. It was the bank’s first foray into the Japanese capital markets, and also represented a useful shot in the arm for the fledgling Pro-bond initiative. Maybank has since graduated to a samurai, allowing a useful comparison between the two markets.

Maybank is exactly the sort of issuer the pro-bond market has sought to attract: a foreign issuer wanting to tap Japanese investor demand for yield, but not quite ready to go through the laborious registration and documentation processes required for a full samurai. “Japan was the first stop for us in expanding our investor base,” says Odie Lee Yih Hwan, group corporate treasurer at Maybank. “As the most developed bond market in Asia, it made perfect sense for Maybank to develop a following there.” But as a first stop, the relatively low-documentation approach of the pro-bond market was appealing and, says Lee, the main attraction.

It worked well: Maybank raised Y31.1 billion, equivalent to US$305 million at the time, in a three-year deal out of the bank’s US$5 billion multi-currency MTN programme. True to Pro-bonds’ claims of being efficient, the deal took only two weeks from the first interest expressed by investors through to completion. It worked so well, in fact, that Maybank followed with a second pro-bond issue in August.

By the following April, though, the bank was ready to take the additional step to samurai documentation, and raised Y31.3 billion (by then US$261 million, the dollar having strengthened in the meantime) in three and five year bonds in April 2015. The samurai actually priced slightly wider than the pro-bond. “We felt that with two issuances in Pro-bond for Maybank, it was time to look into the samurai market, as it offers a more diversified pool of investors,” says Lee.

It was, as expected, more laborious. “Unfortunately documentation requirements are considerably higher for the samurai. We hope that over time, the requirements can be simplified further.” But it was worth doing. “We still think it was worth our while as it is a very developed market and it fits in nicely to our strategy.” Lee says the investor pool was “vastly different” between the pro-bond and the samurai issue.

Japan is likely to remain a fixture as Maybank continues to diversify its funding away from the Malaysian ringgit markets. Like many issuers, Lee, believes the key is to maintain regular contact with investors and to be transparent with them, whether a new deal is coming or not.

Issuer profile: Rabobank

Rabobank has long been a mainstay of the samurai markets. As of the end of August, it was the largest samurai issuer, with just under Y900 billion in senior unsecured outstandings in that format. But, even by its own innovative and committed standards, it has broken new ground over the last 12 months.

On December 12, Rabobank became the first European bank to complete a Basel III-compliant samurai tier two deal.

Samurais are not straightforward at the best of times, the more so when they come in a new format, and it would be an understatement to say that it took some preparation. “We started discussions with investors in 2013, over a year before we actually did the issue,” says Kazuhide Tanaka, chief representative and head of long term funding for Japan at Rabobank in Tokyo. Rabobank’s overall head of capital came to Japan to talk with the most likely investors for a Basel III tier two issue but they were, if anything, a little early. “While a lot of Japanese investors had started to study tier 2 issuance, the fact that no other Japanese bank had come to market in the format was a limiting factor.”

By June 2014, Japanese banks began to issue, “so by the fall of 2014, investors were up to speed: more familiar with the instrument, and with a clear idea of pricing.” In November, Rabobank filed an amendment to its shelf with the Kanto Local Financial Bureau of the Ministry of Finance to inform Japanese investors of the deal’s terms and conditions. Then a Tier 2-specific roadshow was launched between November 25 and 27 to make sure core Japanese investors understood the product. There are, for example, differences between the bail-in regimes and regulatory frameworks under Japanese and European jurisdictions, which needed to be explained in detail.

“This time investors were much more positive, asking pertinent and detailed questions about how this works in the unlikely event that a bail-in occurs,” Tanaka says. “That gave us the confidence to go ahead in December.” Official marketing, with lead managers Daiwa Securities, Merrill Lynch Japan Securities, Mizuho Securities, Nomura Securities and SMBC Nikko Securities, began on December 8, with guidance of Yen Swap Offer Side plus 80-85 basis points, before pricing on December 12 at 83 basis points, between Rabobank’s Tier 2 secondary curves in euros and dollars. The deal, a 10-year bullet, offered a coupon of 1.429%.

The deal raised Y50.8 billion, and offered a decent premium over the bank’s senior debt; a Y7.8 billion 10-year trade that launched in May 2014, for example, paid 13 basis points over swaps. But it created an important and successful benchmark, one that was swiftly useful for BPCE, which became the second European bank to issue in Japan in this structure (see separate profile). “Achieving Y50 billion in an inaugural issue was very satisfying for us,” says Tanaka.

A senior debt deal followed in May, raising over Y100 billion in a five-year fixed rate tranche alone. After regular issuance since 2008, Rabobank creates its own microclimate of demand as its bonds mature. Markets permitting, it should be expected to remain a leader in the market. “It’s a little bit easier to get issues done now investors are familiar with our name,” says Tanaka.

Issuer profile: BPCE

BPCE, even before 2015, was considered a prolific and experienced issuer in Japan, but this year has confirmed it as an innovative leader in the currency. It now has six samurai issues behind it, five senior and one subordinated.

In January it launched the first tier two samurai from a French bank, and only the second by a European bank after Rabobank.

The tier two deal was a new challenge for a credit already familiar to the usual buyers of European senior paper. “The investor profiles were quite different actually,” says Roland Charbonnel. “There were much less traditional asset manager lifers than we are used to in the senior deals. There were more unusual investors like corporate-type associations, schools, universities.”

Is it difficult to do something new in Japan? “It is not difficult to do something new as long as you put the time and effort in to explain what you are trying to achieve.” Pricing was competitive with euros, he says.

Then on July 1, BPCE launched its fifth ever senior samurai, with unfortunate timing. “It priced right in the middle of the Greek mess,” Charbonnel says. “Not the easiest deal to do.”

That said, the fact that it was completed at all was impressive, and said something about the merits of the Japanese markets. “The fact that we were able to do that transaction right in the middle of the Greek crisis – or one of the Greek crises, anyway – was already pretty remarkable. That is a sign of the resilience of that market.”

It helped that BPCE had telegraphed its intention to come to market in a non-deal roadshow at the beginning of June. “So a few significant investors, such as Japan Postbank, were already aware that we were coming to market. If we had not done that roadshow, even a non-deal roadshow, it is unlikely we would have been able to complete the deal.”

“Investors concluded,” he says, “that we had pretty much no exposure to Greece, not just the sovereign but any kind of exposure at all. The fact that we are pretty retail-oriented is reassuring for them.”

The Japanese market, Charbonnel concluded, “is probably a little more separate than other markets would be” from one another. “For example, in my opinion the US market is less separate: if there is trouble in Europe, it’s unlikely that the US market would be unaffected. Whereas in the Japanese market, I’m not saying it was unaffected, but transactions can still be executed.”  Shortly after the BPCE deal, Credit Suisse issued, having to pay a bit more than it might otherwise have done, but nevertheless issuing successfully.

BPCE is somewhat unusual in that, although it usually would swap back into euros, it does have Natixis within its group which has some funding needs in dollars and yen. So in recent deals, BPCE has kept its proceeds in yen and not had to worry about movement in swap rates.

Japanese investors do appear in BPCE’s non-yen paper, dollars much more than euros, and saw strong participation in an Australian dollar deal it conducted last year.

In June, BPCE took a rating from the local Japanese agency RNI, ahead of its latest senior bond issue. “The real purpose of that rating is for potential tier 2 issues going forward,” he says. “The thinking was twofold. First, it’s easier if there is literature in the Japanese language for investors to read – maybe investors in the regions of Japan, not Tokyo. If they are able to see that the paper is rated by a Japanese rating agency, they are more confident.

“Secondly, the rating is to be eligible for the Nomura BPI index, which is quite important for tier 2 if you want to be able to reach asset managers and trust banks.”

Today, BPCE has Y427.6 billion of samurai bonds outstanding, alongside a much smaller amount in uridashi.

Issuer profile: Macquarie

In March, Macquarie Bank became the first Australian issuer to use Japan’s Pro-bond market. Backers of that market jumped upon the transaction as a turning point, and evidence that Pro-bonds are gaining traction with Japanese investors.

The two-tranche deal raised a total of Y34.1 billion (US$280 million at the time), Y3.2 billion of it in a three-year bond priced to yield 13 basis points over swaps and Y30.9 billion in a five year, yielding 25 basis points over swaps.

Those numbers raised eyebrows in the industry in terms of both size and price, both of which were previously said to be factors that are compromised when an issuer goes for the Pro-bond rather than the samurai market. Not only that, but the deal is understood to have attracted large investors including the Development Bank of Japan and various city banks. This, too, is often considered a downside of Pro-bonds which, since they do not appear in major domestic bond indices such as the Nomura BPI Index, can sometimes be ignored by bigger investors.

Market discussion at the time concluded that Macquarie’s deal was no wider than a samurai would have been, and perhaps 10 basis points wider than a new US dollar deal would have achieved (which is in line with most samurais).

Alongside that, all the usual stated advantages of the Pro-bond model held firm. The main reason issuers consider Pro-bonds is because they involve far less registration and documentation (for example, being permitted to keep documents in English rather than being required to translate them into Japanese). Indeed, this time Macquarie took about three weeks to register a US$25 billion debt issuance programme on the Tokyo Stock Exchange in March, and was able to launch its pro-bond issue from that programme. By contrast, it would have taken about two months longer to do a samurai.

“The success of this transaction, as the first Pro-bond issued by a borrower from this region, received the attention of other similar rated borrowers in Australia,” says George Skiadopoulos, head of debt capital markets at Daiwa Capital Markets Australia.

Macquarie joins a still small but increasing number of pro-bond issuers, of which ING is considered the vanguard. Others include Banco Santander Chile, Maybank (see separate profile) and Banco Santander.