Global Capital Japan Roundtable: Debut and Repeat Issuers

Global Capital, September 2015

Japan roundtable – Debut and repeat issuers

Over the last two years a number of debut issuers have appeared in the Samurai market — and many of them have been back within a year, sometimes less. They have been attracted by consistently improving pricing — which, with a benign basis swap, stays attractive when compared to euros or dollars — as well as the usual attractions of a diversified funding base. Indeed, demand has been so fervent that issuers have begun to cap their deals, something that was unheard of as recently as two years ago but which Japanese investors are also learning to tolerate. Pro-Bond, meanwhile, is still chiefly a market we associate with ING, but with other issuers waiting for their moment, we may be on the cusp of critical mass.

 

Participants:

Stéphane Landon, head of group funding and ALM, Société Générale

Alexandra Vayn, group funding manager, Société Générale

Vincent Robillard, head of group funding and collateral, Société Générale

Ola Littorin, head of long-term funding, Nordea

Roland Charbonnel, director of group funding and investor relations, BPCE

Dennis Haring, vice president, long term funding, ING

Lauri Iloniemi, head of funding, Pohjola

Christopher Wilmot, head of treasury and global markets group, First Gulf Bank

Sam Amalou, managing director, debt capital markets, SMBC Nikko

Vince Purton, head of debt capital markets, Daiwa

Chris Wright, moderator, GlobalCapital

 

 

Global Capital: The last 12 months have seen a number of new issuers, sometimes issuing twice in that period, as well as some returns after an absence. What are we seeing and why?

 

Vince Purton, Daiwa: We have seen several high profile debut deals in 2013 and 2014, and this of course is a sign of a healthy market, as is the fact that we are also seeing some familiar names back after a period of absence.

For debut issuers the advantages of the market — a complementary investor base in a largely buy-and-hold environment where deal size reflects real demand without any obsession with a liquidity premium — have become clearer over time as global market volatility showcases the benefits of having access to all major investor and currency-specific groupings worldwide. Despite the documentation and disclosure hurdle for a first time name, the market is still seen as issuer-friendly once deal-specific dialogue with investors begins. Cost competitive funding at the preferred tenor and in the preferred size and to a huge number of new investors — what could be better? And, 12 months after that debut deal, an issuer has eligibility for a shelf programme to speed up and simplify subsequent issuance — and provide access to the Uridashi market, which is of enormous significance to a large number of SSA and FIG issuers.

 

Sam Amalou, SMBC Nikko: We see less on the first time issuance side, but we do see recent issuers consolidating their presence with return deals, such as SocGen, Pohjola, HSBC, Handelsbanken and Barclays. The latter was absent for more than four years but has come back in impressive size and maturity.

 

Global Capital: What’s the appeal to return?

 

Amalou, SMBC Nikko: The cost has changed, name recognition clearly is getting a lot more traction from Japanese investors, and the volumes are more akin to benchmark size at home. If you look at Handelsbanken, last year they raised ¥50bn. They did ¥75bn this year, and even that was capped — the actual book was over ¥100bn. HSBC did ¥55bn last year, ¥75bn this year. Pohjola went from a ¥30bn inaugural to ¥60bn, double in size. So in cases where size has dropped, it’s more because the issuer has decided to cap the deal rather than suffering a lack of demand. You can see it in the pricing too: Handelsbanken priced a five year tranche last year at plus 10, this year at plus two. Rabobank in December priced five years at 15, and in June this year, at six.

 

Purton, Daiwa: It has been refreshing to see some familiar names returning, both in stand-alone and JBIC guaranteed formats. Name familiarity remains a powerful advantage in this market and issuers usually have the immediate ability to use a maintained shelf eligibility and thereby to minimize the re-entry costs. In our experience very few issuers tap the Samurai market once and never return; usually the frequency of issuance depends more on the borrower’s annual funding programme, the short term vagaries of the basis swap, and changes to its underlying credit ratings . As I said earlier, this is a very issuer-friendly market once borrowers look beyond the one-off workload for that debut deal — a workload that is in any case no worse than that needed in other major markets.

 

Global Capital: Let’s hear from some recent issuers. Stéphane, how did market conditions vary between SG’s most recent issue and previous ones?

 

Stéphane Landon, Société Générale: We have launched two Samurai, one in 2012 and one in June 2014. Obviously, market conditions were quite different. The one in 2012 came a couple of months after the “Whatever it takes” speech from Mr Draghi, in a market that was tightening but nevertheless with some question marks for European names, and we were one of the first to re-enter this market. The appetite we have seen on the more recent deal was once again very significant. For the first time, we limited the size of our transaction.

 

Global Capital: Why so popular this time?

 

Landon, Société Générale: A few points. The name is well known and well recognized; there is renewed appetite for foreign bonds from Japanese investors; and the fact that maybe the Japanese investors are looking more closely for attractive investment alternatives.

 

Société Générale: How does cost of funds compare to other currencies?

 

Landon, Société Générale: It’s close to the cost of funds we would get in euros. Obviously that was part of our decision process and our strategy: we are quite happy to expand our investor base and make sure it is as diversified as possible, but we are not ready to pay much more for issuing in other currencies.

 

Alexandra Vayn, Société Générale: On our most recent deal, we were flat to euros in certain tenors, and around a couple of basis points inside on the short term. It was very competitive.

 

Global Capital: What proportion of your funding is from Japan?

Landon, Société Générale: There have only been two public issues, and the remainder are private placements. It is definitely not one of the top markets. Something below or around 5%.

 

Global Capital: Ola, Nordea has issued three times in the last three years since your debut. How have you seen the market change over that time?

 

Ola Littorin, Nordea: We have seen the market develop in a positive way for Nordea. There has been an increasing appetite for high quality credits like Nordea, represented by a keen interest to meet with us during our roadshows to understand our name and credit specifics. It is also illustrated in the order book volume, in terms of the quality and number of orders. Nordea’s 2013 issue raised ¥91.2bn; its May 2014 issue attracted over ¥100bn and was capped at that level.

 

Global Capital: How has pricing changed over time for you?

 

Littorin, Nordea: It has largely priced in line with the euro market, which is our main reference market. In yen terms spreads have moved tighter. Our latest transaction in May represented the tightest pricing recorded by a European financial borrower in the Samurai market.

 

Global Capital: How has the basis swap behaved over that period?

 

Littorin, Nordea: Since the financial crisis, both the dollar and euro basis swaps have trended at wide levels, but in the last couple of years we have seen it calm down, and the basis swap for both of those currencies has been tightening and moving in a more stable range. We have seen increasing Samurai volumes during this time, which has been a widening factor, but increasing international bond issuance by Japanese issuers has been off-setting that. Going forward, we may see a slight widening due to the monetary differences between the Fed, in tightening mode, and the ECB, which is not, but I don’t expect any dramatic movement.

 

Global Capital: In what maturities have you found the greatest appetite?

 

Littorin, Nordea: Three and five years have traditionally been the deepest pockets in terms of investor appetite with the balance in favour of five year. That serves our own needs quite well. We have explored 10 year as well, but we dropped that in the past two transactions, as we did not source sufficient interest in that maturity.

 

Global Capital: Given the overwhelming liquidity in the market and investor search for yield, do you think a 10 year could be more achievable in the near future?

 

Littorin, Nordea: I wouldn’t be surprised. In strong credits we have seen investors migrating out the curve to secure a higher return.

 

Global Capital: What spread of investors do you see in your paper?

 

Littorin, Nordea: The large asset managers and central financial institutions represent the core of our investor base. They are very important in in the process for determining the spread. We are also seeing a good take-up of regional accounts. In our latest trade we had approximately 30% of the paper distributed to over 70 regional accounts: regional banks, regional co-operatives, agricultural co-operatives and other accounts. It is something we very much welcome as it increases the granularity of the deal. Over time we expect to increase distribution to regional accounts much in line with what we have already achieved in other core international markets.

 

Vayn, Société Générale: We are also seeing more interest from regional banks, which were not as interested in foreign maturities as they are becoming now. In the last year and a half we have seen a big shift in their appetite for this type of paper. The size of the tickets cannot compete with the institutional base in Tokyo, but it allows the book to be more granular. The regional banks bring more momentum.

 

Global Capital: And that’s healthy for the deals presumably?

 

Landon, Société Générale: Yes, it’s usually a sign that the price will behave, and that the liquidity in the market will be greater.

 

Global Capital: Pohjola is interesting having swiftly followed a debut with a follow-up, and for achieving a much improved result in the process. Just how much did the market change between your first and second issues?

 

Lauri Iloniemi, Pohjola: The easiest way to explain it is to put it into numbers. The first transaction, in June 2013, raised ¥30bn; the second, in June 2014, ¥60bn. The first one had under 50 accounts, the second one over 100 accounts. And when I look at the pricing, the first one was wider than my euro pricing would have been in euro markets, and the second one was exactly the same [as euros]. So they were very different transactions. [Pohjola paid 16bp over swaps for the three-year tranche on its first deal, and just five on its second; on the fixed five-year tranche, the spread fell from 17bp to 8bp.]

I have a unique experience. My most recent Samurai priced on the same day as a euro issue, both at five years — so I can say that the pricing was exactly the same, to within a basis point.

 

Global Capital: Can spreads like that last? Do you think they are here to stay for a while?

 

Iloniemi, Pohjola: It’s a phenomenon of other markets as well. They have all tightened. Investors have adapted. You see many of them looking for yield and extending duration.

 

Global Capital: That being the case, could you go longer than five years?

 

Iloniemi, Pohjola: From our perspective, five years seems to be the sweet spot to do senior funding. For longer term funding, as a group we would rather use covered bonds in the euro markets. That makes more sense for us. But having said that, nothing prevents us, when we do our next Samurai, from adding a 10 year tranche if there is demand at the time.

I would say that the sweet spot for investors is moving to a longer maturity. Last year three years was the sweet spot; now it is five years. That is good for me as an issuer.

 

Global Capital: And did the deals bring you the diversification you wanted?

 

Iloniemi, Pohjola: They did indeed. If you look at the amount of regional investors involved, it was very high. Very high. Regionals accounted for more than half the number of tickets. That’s the diversification we were looking for, and that’s what we got.

 

GlobalCapital: Roland, BPCE has issued three times since the end of 2012. How have you seen investor diversification change, and do you see the same contribution from regional names that the others have seen?

 

Roland Charbonnel, BPCE: We have seen increased investor diversification in terms of type of investors as well as their geographic location. There are more regional investors now than there were at the beginning: we are making an effort now to go and see those regional investors. A few years ago, we used to pretty much only visit Tokyo. Regional investors usually appreciate it a lot when you reach out to them.

 

GlobalCapital: Your transactions have grown considerably in the brief time you have been issuing. The second deal, in 2013, was a record size and more than double the size of the first one. What has changed?

 

Charbonnel, BPCE: Quite frankly, one factor was the European sovereign crisis, which was still an issue in 2012. Some Japanese investors were not investing in European names around the middle of 2012 and had started to decide to invest again towards the end of that year, when we issued, but were still a little shy. We saw a big change in 2013. They were, and are, definitely much less shy in terms of buying European names.

We cannot really compare with our latest transaction because we decided ourselves to cap the size of it [at ¥70bn billion, compared to ¥131.6bn in the 2013 deal]. There were two reasons for that: we had decided we wanted to do two issues in 2014 — the one in July is number one and we would very much like to do another one before the end of the year — and also we were very much advanced in terms of the execution of our 2014 funding plan at the end of June and didn’t have a big appetite, so we decided to cap the size.

 

GlobalCapital: There is a trend towards capping deals. This is new in a market where investors are used to getting their full allocation. What was your experience?

 

Charbonnel, BPCE: I guess it bothers the investors a little bit — and maybe even more the securities houses, because they have to deal with the investors in the allocation process, and it goes a little bit against the traditions of the Japanese market.

But as long as you are able to announce that fairly well ahead of the issue itself, it’s easier for the syndicate banks to manage the transaction and let investors know that there will be a cap, and that a huge order will not be allocated in full.

 

GlobalCapital: SG was the first of the issuers to cap. What was your experience?

 

Vayn, Société Générale: In the Japanese market, investors are used to being allocated the whole amount that is in the book being issued. We were one of the first to come up with a different strategy: we wanted to get back into the Samurai market but had limited funding needs, so decided to cap the size of the transaction. That’s unusual. We had ¥160bn in the book but decided only to issue ¥72bn, which was quite new to syndicate and investors. Other Samurai issuers followed our path in the weeks and months that followed.

 

GlobalCapial: Did that cause any problems with disappointed investors?

 

Vayn, Société Générale: Our strength was that we came up with this from day one, so when we mandated the banks we told them that this would be our strategy and that we would not print more. So our bankers were able to explain to investors from the start that this would be our strategy. Investors understood. Some were disappointed, but they understood.

 

GlobalCapital: Nordea also capped. How did that go?

 

Littorin, Nordea: We capped our latest transaction at ¥100bn. Explicitly capped transactions have become more common. It’s something we welcome as a feature in the Samurai market, helping to manage a price and size discussion in a more effective and predictable way.

 

GlobalCapital: And was there any pushback from investors?

 

Littorin, Nordea: I think it’s part of a logical adaptation process in the Samurai market to other developed markets. I can only speak for our transaction, but we didn’t find any pushback.

 

GlobalCapital: What do bankers see when capping happens?

 

Amalou, SMBC Nikko: Clearly, to be fully allocated was very much an expectation in the past when deals were, on average, of a more moderate size. Demand is so high today that it is often exceeding ¥100bn. However, I think investors are clearly accepting that capping is becoming more of the norm, because issuers simply cannot absorb the sort of volumes subscribed.

 

Purton, Daiwa: The deals are capped for a variety of reasons: issuers have other alternate sources of funding, or they still want to diversify their investor base — which is best achieved in the Samurai market — but they have limits as to how much funding is available in senior format.

 

GlobalCapital: Returning to pricing.  Nordea’s 2013 deal was a record low spread for a Samurai; your 2014 deal was even tighter. Where does this end? Will investors eventually say: no more?

 

Littorin, Nordea: I think it’s a question which needs to be discussed against the broader context of yield and spread developments globally. The shortage of high quality investment alternatives is likely to push this development further in the near term perspective.

 

GlobalCapital: Roland, how have you found cost of funding in Japan?

 

Charbonnel, BPCE: Obviously we look at cost of funding, but primarily the reason we decided to enter the Samurai market was investor diversification, that’s reason number one. Then, it’s a condition that funding is more or less in line with our euro levels, our domestic market currency.

In our first transaction at the end of 2012, we paid a little bit of a premium over our euro levels.  In the second one, the big one at the end of 2013, it depended on the maturities; in some tranches we had a little bit of an arbitrage and in some tranches had to pay a couple of bips of premium. The most recent one in July again we had a bit of an arbitrage, which had to do with the evolution of the basis swap, which had tightened since the end of 2013. Right now we have seen a tightening of the basis swap for five year maturities of 10 bips since the end of 2013.

 

GlobalCapital: And just how much diversification do you get from going to Japan? Is investor diversification notably different?

 

Charbonnel, BPCE: Japanese investors tend to have more of a buy-and-hold style than would be the case if you are dealing with investors in London or the US. It’s good for a foreign issuer to know that investors are going to hold on to the paper. There are similarities too, though: Japanese investors are part of the global markets, and they follow the trends of those global markets.

 

GlobalCapital: ING has been at the vanguard of the development of the Pro-Bond market, having issued twice in 2012. Why did you choose to take that route?

 

Dennis Haring, ING: It’s the typical story of the disclosure burden with Samurai. It takes a lot of internal effort to deliver what is needed and it just wasn’t feasible for us to do that. We were also in the middle of our restructuring then, and it was too big a burden on the finance department. And then there was an alternative: Pro-Bonds. Also, there are more issuance windows for Pro-Bonds through the year than there are for Samurais. People tend to forget that when they compare the two programmes.

 

GlobalCapital: It feels like the market has still not taken off.

 

Haring, ING: It has. We have seen four or five issuers. I think that’s already an encouraging number.

It takes time. You have banks that already have Samurai in place, and that creates a sort of a perpetual disclosure burden, so it keeps itself alive — since you have to make the full disclosure, why not use it? Or you have issuers that have already been preparing a Samurai shelf and would find it difficult to abort that process.

But at the same time, you have issuers that don’t need any further diversification; and issuers that want to do something in yen but cannot go down the Samurai route, so it is not a one-size-fits-all type of programme. A new market takes time to develop, and we see no reason to be pessimistic about it.

 

GlobalCapital: There was a huge increase in size between your first and second issues [¥50.7bn in April 2012, ¥175.9bn in December 2012]. What sort of deal can be achieved in the Pro-Bond markets now?

 

Haring, ING: I think the size ambition is dependent on the funding need. In addition, I do not think there is a typical size in the Japanese market, compared to, for instance, Europe, where deal sizes typically vary along the lines of €500m, €750m, €1bn, and so on.

 

GlobalCapital: And perhaps the need for funds is lower now than in 2012?

 

Haring, ING: Generally the funding need is reduced. In the crisis period from 2008 to 2013, issuers were issuing like there was no tomorrow. The need for further diversification is subdued because the funding needs are lower. But I think that in the short to medium term, people will start increasing their funding operations, and will seek nice alternatives. Pro-Bond is then an option.

 

GlobalCapital: How did pricing for you compare with Samurai or other markets?

 

Haring, ING: Back then, we felt that the pricing was anywhere between a euro and a dollar deal, cheap compared to one and more expensive compared to the other; those were acceptable concessions to pay for investor diversification. Paying up a little bit was not a problem. And for future issues, we will have a close look at relative value again.

If you look at the basis swap, we have seen an improvement in 2014, in that the negative effect of the swap has reduced. But we need to keep an eye on it. There’s no point issuing a three year yen at 30bp wider in euro terms than a straight euro deal. There is a trade-off between making a concession for diversification, and doing an uneconomical deal.

 

GlobalCapital: Could you do a five year deal in that market?

 

Haring, ING: Now maybe more than before, because of the yield environment. You see in the Samurai market that investors are going down the credit curve, and that they are more favoured to buying longer deals just to get some pick-up.

 

GlobalCapital: Did a Pro-Bond issue bring you diversification?

 

Haring, ING: We haven’t checked that in numbers, but I am sure we have seen investors that we would not have seen without the Pro-Bond.

 

GlobalCapital: But do you reach less investors than you would with a Samurai?

 

Haring, ING: The investor base is a bit narrower, but my gut feeling is that there is a 75%, 80% overlap.

 

GlobalCapital: Who can’t buy a Pro-Bond who could buy a Samurai?

 

Haring, ING: Pro-Bonds are not yet included in certain bond indices, so the parties that can only buy the bonds in such an index cannot buy the Pro-Bond.

 

GlobalCapital: Has Nomura indicated when it might include Pro-Bonds in the index?

 

Haring, ING: This is really a question you should ask Nomura, I am afraid.

 

GlobalCapital: Is it going to fall to ING to give the market critical mass?

 

Haring, ING: No, we will use the market for its merits, and we think they are there. If a new issue would help that process, that’s fine for a side effect, but that’s not a reason to issue.

 

GlobalCapital: Well, there are now other issuers looking at Pro-Bond at least. First Gulf Bank, this year you received approval for a programme listing on the Tokyo Pro-Bond market. What has attracted you to raise capital in Japan?

Christopher Wilmot, First Gulf Bank: Our Y10 billion five-year Tokyo Pro-Bond issuance in July 2014 provided FGB with access to Japan’s stable capital markets and mature investor base. The format allowed us to diversify our invest base and efficiently access a fast-growing, new, innovative product.

 

Japanese funding levels for FGB are in line with, and in some instances below, levels in other international funding markets we have access to.

 

GlobalCapital: And why have you opted for the Pro-Bond format rather than a Samurai?

Wilmot: The speed to market and ease of documentation positively differentiate the Pro-Bond format from the Samurai market. Given FGB’s yearly term funding requirement, the volume capacity of the Pro-Bond product was appropriate for us.

 

GlobalCapital: How attractive is it to have lower regulatory and documentation requirements, and the opportunity for English-language material, in the Pro-Bond format?

Wilmot: The regulatory requirements, and the ability to file non-translated documents, increase the speed to market and reduce the internal and external resources required to raise funds from Japanese investors.

 

GlobalCapital: In future, would you consider other methods of fund-raising in Japan, such as Samurais or an Uridashi programme to reach Japanese retail?

Wilmot: At present, the regulatory and documentation requirements of Pro-Bonds are well suited to FGB’s international issuance requirements. As Japanese investors become more familiar with FGB’s credit, other formats may be considered while taking into account the extra resource requirements versus the increased volume pick-up.

 

GlobalCapital: Vince and Sam, you have said that Pro-Bonds are now part of the dialogue. Are we seeing new issuers? And how does it change the options open to issuers?

 

Amalou, SMBC Nikko: A year ago ING was perhaps in a slightly lonely place in having issued the only two Pro-Bonds. But we’ve since seen new issuers, such as Maybank, a single-A name with a ¥20bn five year transaction, and First Gulf Bank doing a private placement-style Pro-Bond. It’s a market that is appealing to some issuers looking to gain greater visibility with core investors in Japan.

 

Purton, Daiwa: For credits that have accessed the Japanese markets in the past, I don’t think the benefits of switching format are obvious; there may be some exceptions but in general the Pro-Bond format will instead appeal more to first-time issuers. Those who have launched Samurai, with the more onerous disclosure requirements, will stay with Samurai, as the hard work has been done and it has the bigger investor base. But the fact that issuers now have an option is healthy for the market.

 

GlobalCapital: And it is now a credible option?

 

Purton, Daiwa: We have seen some debut issuers cast a serious eye over the relative merits of the Samurai and Tokyo Pro-Bond formats, and the availability of both nowadays ensures that the domestic Japanese market is of import to the widest possible group of borrowers, those requiring access to the widest possible domestic investor base as well as those focusing more on the volume — and language — of initial documentation and disclosure, and of course all those falling somewhere in between.

 

GlobalCapital: Issuers, do you look at Pro-Bond?

 

Robillard, Société Générale: We are hearing on a regular basis from Japanese banks about this market. We can see the idea is to make it easier for foreign issuers, with less cumbersome documentation. But we don’t see the market growing. It looks like a good idea, but so far it is lacking supply.

 

Littorin, Nordea: We have looked at it, but we have not found it attractive.

 

GlobalCapital: Why?

 

Littorin, Nordea: The benefits of Pro-Bonds would be less of a documentation burden and lower cost. However, the offering type is private placement and the investor base is limited. The bonds are not index eligible and therefore pension accounts, who are the main players in this market, cannot participate. Furthermore, non-professional accounts would be shut out.

 

Vayn, Société Générale: From our perspective, when we did our inaugural Samurai, it looked like the right thing to do, and once you have started in Samurai you have to update all your documents until your bonds mature. So doing a new issue in Samurai is not that much more cumbersome since we already have to maintain that information.

 

Robillard, Société Générale: One advantage for issuers would be that it offers more windows to access the market. Today, when you look at European names who want to issue in the Japanese market, they have just two windows.

 

Charbonnel, BPCE: Some banks have talked to us about Pro-Bonds, but it seemed to us that the established form of issuing for a foreign issuer in the Japanese institutional market was the Samurai. We haven’t investigated the Pro-Bond market all that much: I am aware of its existence, but we have stuck to traditional product. The Samurai market has been good to us, we have no complaints.

 

Iloniemi, Pohjola: We looked at it briefly. But we are here for diversification, and Pro-Bond investors could invest in our other euro denominated or EMTN products. That would not provide diversification to such an extent as the Samurais do, and especially the regional investors we got in the most recent Samurai. In that sense, it is not a contest.

 

GlobalCapital: How is marketing of issues different in Japan? And what helps you to be successful?

 

Landon, Société Générale: In some ways it’s pretty similar. We are going into Japan for both equity and debt on a regular basis, and the process of marketing is the same in terms of visits to investors. But there are some specificities: in particular, the bookbuilding and execution is different.

In Europe and the US when we issue pure benchmark bonds, we just open the books for a few hours and don’t sell overnight. In Japan, it can be open for five days. The other difference is that in Europe and the US we have direct access to the final names; in Japan, only the syndicate knows precisely which investors are in the book. Those are the two main differences.

Another difference is the documentation process which, in Samurais, is quite heavy. Because of that process, windows are very limited compared to in the US and Europe.

 

Littorin, Nordea: We meet Japanese investors at least on an annual basis with dedicated roadshows. We note that Japanese investors monitor our region closely and come well prepared to our meetings. The meetings are mutually beneficial as they provide valuable insight for us into Japanese investor views.

 

Charbonnel, BPCE: I am there quite often, as often as they would like to see us. Over the past year I think I have been there five or six times.

 

Iloniemi, Pohjola: You build it up. The first time you see accounts, it is an introduction; the next time, a bit deeper; and then… it takes time but it is about building the relationship, face to face.

 

Haring, ING: In terms of investor work, I don’t think there is a lot of difference, because they are as well prepared as, say, a UK investor. They have similar questions. The only thing is that you need some help sometimes with the language, so we would translate the pages in the chartbooks, or take an interpreter.

When it comes to marketing a deal, that’s a bigger difference, because it takes longer. With a European or 144A deal, you will be in and out of the market in a day; for a Pro-Bond, it takes a week.

 

GlobalCapital: Does the length of time the books are open for create a problem for you?

 

Landon, Société Générale: Yes, to a certain extent. In a week, there can be newsflow in the market: political news, economic news, idiosyncratic news, systemic news, market news. At the end of the day it’s not easy to manage the situation when it’s open for five days.

 

Vayn, Société Générale: But the counterpart to this practice is that the market is quite resilient. When you start the marketing process you set guidance and every day may tighten it further. As an issuer, within that guidance, you are relatively safe and the chances are you will be in a position to print the deal even if market conditions change, which is not the case in the dollar and euro markets.

 

Haring, ING: It’s not really a problem, although you have a bit more uncertainty with respect to the swap levels. Your window is wider, and there is more risk that some volatility comes in, but that’s it. Deals are executed in line with market practice and everybody does it that way.

 

Charbonnel, BPCE: Once you are used to it, it seems like the normal thing to do. It’s true that it is very different from the way that the markets work both in Europe and the US: it’s so unusual to have the books open even through the weekend, you would never do that when doing a deal in Europe or the US. But that’s the way it works, a slow building process. What we have seen recently is that the bookbuilding period tends to be shorter than it used to be a few years ago. In our latest transaction, back in July, after a few days — even two days — most of the bookbuilding was done.

 

GlobalCapital: Is that because of the amount of liquidity in the market?

 

Charbonnel, BPCE: I guess so. Maybe because we announced there would be a cap on the transaction, so perhaps everybody rushed to be in the books earlier rather than later.

 

GlobalCapital: Ola, what do you see?

 

Littorin, Nordea: The marketing period is clearly a longer process compared to the Europe or US dollar equivalents, taking approximately four to five days until pricing, mainly to accommodate Japanese investor approval processes which take a longer time. But we are noting the marketing process becoming more compressed, which is welcome, because it reduces the exposure we face as an issuer to market risk.

 

GlobalCapital: How is that compression affecting price discovery?

 

Littorin, Nordea: If we are talking of a repeat issuer, where investors have good knowledge of the credit characteristics and behaviour of the issuer, and there are references not only in Japan but other markets, then one should be able to shorten the marketing period as the need for the price discovery process is simply less. And this is something we have experienced with the latest two trades, where we have been able to identify a narrow range more quickly than before.

 

GlobalCapital: First Gulf Bank is a new name from a relatively new region for Japanese investors. How is investor recognition of your credit, and of Middle Eastern financial institutions generally, in Japan – and how do you improve it?

Wilmot: FGB enjoys strong support from Japanese investors and continues to receive private placement inquiries from Japanese investors following the Pro-Bond issue. We have received positive feedback from Japanese investors on the attractiveness of UAE FIG credit as a whole.

 

GlobalCapital: What interest do you see in your non-yen paper?

 

Landon, Société Générale: Very limited. They are not frequent investors in our issues denominated in euros or dollars.

That said, the major institutions are quite focused on private placements. In Japan, usually the biggest name shows the way into currency diversification. We have clearly seen that and they have shown strong appetite for private placements, especially where spreads are beginning to tighten: there’s still quite a lot of juice or pick-up in our credit.

 

Littorin, Nordea: We have seen Japanese investors in our euro and US dollar benchmark senior transactions, and we have also seen them active in our non-benchmark transactions and private placements.

 

Charbonnel, BPCE: I would not say big, but they do play a role. For instance, when we issue in US dollars, we do see some orders coming from Japanese investors, including some very big fixed income investors in Japan. I see it less in euros than in US dollars.

 

Iloniemi, Pohjola: We do see Japanese investors in non-yen, and of course for some Japanese investors they do both: they invest in our Samurai and our non-yen paper.

 

Wilmot: FGB sees demand from Japanese investors for non-yen paper in both public and private placement format. This demand is seen across the curve, from 12 months out to 10 years.

 

GlobalCapital: Bankers, what trends do we see in Uridashi?

 

Amalou, SMBC Nikko: The volumes have generally been a little bit lower this year, party because of relatively sustained performance in the equity market. Volume-wise, we are probably about 20% down this calendar year.

The vast majority of issuance continues to be in yen — about 70% — and the rest in other currencies, the most popular one being the Australian dollar. We see volumes of about $25bn year to date.

Of the yen volumes, I would say 85% of it is structured. Structures tend to be driven by volatility in the market: looking at the equity and foreign exchange markets, you have some months where volumes are much higher than others. The market is dominated by agencies doing structured deals, and financial issuers — the likes of Crédit Agricole, Deutsche Bank, Barclays and Rabobank — tending to issue in lighter structures or plain vanilla.

 

Purton, Daiwa: Uridashis have been around for a long time now. We are still seeing a healthy diversity: we led offers in six currencies this year, for example. The basic premise of investor appetite is the same — the search for yield — and to get it investors will do two things: look at exotic currencies in a plain vanilla format, or take limited structured risk and stay in yen in equity-linked or forex options. It’s a question of finding the right blend. The market is still in good shape, although we are not seeing the overall volumes we did two or three years ago.

 

GlobalCapital: Issuers, are you active in Uridashi?

 

Vayn, Société Générale: Yes indeed. Within SocGen, our investment bank is entitled to issue structured bonds in Japan and elsewhere, and our Uridashi are originated from Tokyo by the investment teams, through strong partnerships with the biggest players such as Daiwa, SMBC Nikko and Mitsubishi UFJ Morgan Stanley.

 

GlobalCapital: What structures?

 

Vayn, Société Générale: At some stage the Mexican peso was quite strong, the Turkish lira, and South African rand. In terms of structure, it’s always lightly structured.

 

Charbonnel, BPCE: It’s investor diversification: Samurai is the institutional market, Uridashi retail, and Uridashi is actually the bigger of the two in size. It’s a way for us to be present in that market, but we have just started and it is going to take some time to familiarise retail investors with BPCE’s name, because we are suffering a little bit from lack of name recognition in Japan. They’re not exposed to our name, and we don’t have a presence in Japan ourselves. But our subsidiary, Natixis, is present in Japan through Natixis Japan Securities

 

GlobalCapital: How about through your Natixis business?

 

Charbonnel, BPCE: We may use Natixis for structured types of products, whereas BPCE is into plain vanilla transactions. What we have issued in Uridashi for the time being has been plain vanilla bonds. There is a space for structured paper, and we would use Natixis for that, but Natixis is not yet completely ready in terms of its documentation to issue Uridashi.

 

GlobalCapital: What currencies have you issued?

 

Charbonnel, BPCE: The first one we did was in Turkish lira, driven by the search for yield by Japanese retail investors. My understanding is that, although it is a large market, it is only a small portion of the investments of retail investors: they invest heavily in local investments including JGBs. For a fraction of their investments they are prepared to take some risk for some return — and they do take risk, because there is certainly an exchange rate risk if you buy bonds in Turkish lira or other exotic currencies.

 

Littorin, Nordea: We issue Uridashis off our shelf, and that has been a good complementary market opening up to us since our debut trade on the Samurai market. We’ve been active ever since that first Samurai transaction.

We do any freely convertible currency. Our structures are plain vanilla: we don’t do any structured format.

 

GlobalCapital: What is popular?

 

Littorin, Nordea: It varies. Mexican pesos and US dollars we have had some large tranches in.

 

Iloniemi, Pohjola: We don’t do Uridashi yet, but it is something that, further down the line, we would like to do at some point. There’s no technical reason we couldn’t do it now, but we still have quite a lot of work to do with the regionals before we turn our attention to retail investors: we are the new kid on the block.

 

GlobalCapital: Have you thought as far ahead as what structures or currencies you will use?

 

Iloniemi, Pohjola: As an institution we like to keep it as plain vanilla as possible. Uridashi depends on where the demand of retail investors is at any given time. We have traditionally not done complex structures.

 

Haring, ING: Uridashi is an interesting funding product, but it is tied to the Samurai shelf. The interest would be there, but we would either need a retail version of a Pro-Bond to be set up, or we would have to set up a Samurai shelf.

 

GlobalCapital: What impact has Abenomics had for you as an issuer?

 

Landon, Société Générale: We are seeing appetite from Japanese investors for non-yen assets, or for non-Japanese issuers to come into their market. Clearly there is huge liquidity available, and that creates an interest for them to diversify their holdings.

 

Littorin, Nordea: Abenomics has definitely played a role. We have seen yen yields and domestic yields come down to low levels driven by Abenomics. We see investors left with a lot of cash and a lack of investment opportunities, leading to strong demand for Samurai products from high quality issuers like ourselves. The global market backdrop in terms of monetary easing and liquidity in the system is also impacting the investment alternatives for Japanese investors.

 

Charbonnel, BPCE: Yield in the Japanese market has been low for quite some time. Abenomics may play a role, but it’s more a fundamental pattern of domestic investors in Japan having to deal with very low yields and looking for higher returns.

 

Iloniemi, Pohjola: Last year when Abemonics was introduced there were expectations of high inflation rates, leading to higher interest rate expectations and high volatility. That’s why investors were focused on the short end. Now it seems the inflation rate will not reach the 2% target in the near term, and it may be that interest rates are prolonged at a low level. That is creating more interest in the longer end. Related to that, more Japanese are looking for yield now, and therefore looking at the Samurai market. In that sense, it is good for foreign issuers.

 

GlobalCapital: Ola, Earlier you mentioned the growing importance of regional investors, who took 30% of your latest deal. Do you target them on roadshows now?

 

Littorin, Nordea: We haven’t had a specific regional investor-targeted roadshows. We have arranged group presentations at some locations when time has allowed. The challenge with addressing regional investors is time efficiency, since geographically they are spread out across the country. But as we become further established, we intend to gradually increase our contact with regional investors.

 

GlobalCapital: Roland, you spoke of this too.

 

Charbonnel, BPCE: We have just started. It reminds me of the MidWest in the USA. When we go and see them they are so happy to see us, because lots of issuers don’t make that effort. Regional investors in Japan are the same. Usually they are less fluent in English, but we use interpreters.

 

GlobalCapital: Are they different in terms of what they want to buy?

 

Charbonnel, BPCE: There are maybe some differences in terms of preferred maturities, and between fixed and floating, but it varies between investors.

 

GlobalCapital: Lauri, more than half of the orders in your most recent Samurai came from regional investors. Do you target them in roadshows now?

 

Iloniemi, Pohjola: The first time when we did our roadshow we only concentrated on Tokyo, and then on the second one we went to the regions. And yes, it paid off.

 

GlobalCapital: Where did you go?

 

Iloniemi, Pohjola: To Nagoya, Kyoto and Gifu.

 

GlobalCapital: Are they pleased to see you when you visit?

 

Iloniemi, Pohjola: Yes indeed. Tokyo investors see quite a few accounts, whereas in Gifu, it might be quite rare to see an issuer.

 

GlobalCapital: When will you next issue?

 

Landon, Société Générale: It’s hard to say. It will depend on our funding needs and market conditions.

 

Iloniemi, Pohjola: We have stated we plan to issue a Samurai every year, so at least once a year. Then the Uridashi will follow at some point in the future.

 

GlobalCapital: Ola, we have seen Nordea here three years in a row, should we expect you to continue this frequency?

 

Littorin, Nordea: Yes. We expect to be an issuer in the Samurai market on an annual basis in benchmark format, maintaining a presence in the same way as we are in other core markets, euros and US dollars. This is a market of strategic importance for Nordea.

 

GlobalCapital: Dennis, has ING continued to visit Japan since your 2012 deal?

 

Haring, ING: Yes we have, we were in Tokyo at the beginning of the year. We are keeping in regular contact with Japanese banks, the syndicate departments and the Tokyo Stock Exchange, and we will include Japan in our future investor work plans.

 

GlobalCapital: First Gulf Bank’s programme allows you to issue a maximum of US$1 billion within a 12 month period. How should we expect to see you issue?

Wilmot: Given the positive reception for the first Pro-Bond in July, FGB will continue to monitor the market for further opportunities. It is expected that Pro-Bond issuance over the medium term will be of a similar size to the July issue.

 

GlobalCapital: Will you be a regular issuer? What proportion of funding might it contribute in future?

Wilmot: FGB continues to monitor swapped funding costs across global markets. The decision to issue into a market takes into account swapped pricing, execution risk, investor diversity and FGB’s term funding expectations over the short to medium term. Given Japan’s stable and sophisticated investor base, it is expected that FGB will be a regular issuer of paper to Japanese investors.

 

GlobalCapital: And BPCE?

 

Charbonnel, BPCE: Not frequent, but regular definitely. That’s what we are telling investors when we meet them in Tokyo and the regions. We would like not to be a frequent issuer, but a regular issuer, by which we mean at least once or twice a year.