Samurai bonds flourish in global credit crisis
TOKYO: Major banks have rushed to tap Japanese investors as the global credit crisis makes lenders wary and, with U.S. and European markets under strain, more banks are expected to take advantage.
Royal Bank of Canada made its first sale of Samurai bonds on Tuesday, raising more than ¥146 billion in three tranches.
The Canadian bank is the latest foreign entity to issue yen bonds in Japan, or Samurai bonds, following in the footsteps of companies from South Korea and Australia, among other countries.
But U.S. banks have been noticeably absent, bankers said, partly because investors have been wary of the exposure of U.S. banks to the mortgage-backed securities market that sparked the global credit crisis.
"To overseas issuers, Japanese financial markets are more stable and less affected by the subprime mortgage woes," said Katsuhide Takahashi, senior credit analyst at Nikko Citigroup.
"With the interests of issuers and investors coming together, this trend of new issuers should continue."
The issuance of Samurai bonds has shown little change despite the onslaught of the global credit crisis, which blew up last August.
Issuance has totaled nearly ¥320 billion, or $3.1 billion, since the new business year started this month, including Royal Bank of Canada's offering.
That's on top of a record ¥2.6 trillion in the last business year as Japanese investors, frustrated by falling interest rates at home, snapped up the higher yields offered by foreign financial firms that have emerged relatively unscathed from the mushrooming U.S. mortgage crisis.
Royal Bank of Canada was among many first-time Samurai issuers this year.
Kookmin Bank of South Korea also sold its first yen bonds in Japan last week after postponing a deal earlier in the year because of volatile market conditions.
Typically, the Samurai market had been dominated by big-name U.S. companies like Citigroup and Merrill Lynch because of their high credit ratings and efforts to establish a strong presence in the Japanese market.
But Japanese investors have become skittish about investing in banks hard hit by the credit crunch.
With Japanese official interest rates at just 0.5 percent and little prospect of moving higher owing to the expected slowdown in the world economy, Japanese investors are looking for higher returns.
These include many of Japan's top life insurers, who said that they wanted to invest more cash in Samurai bonds.
Royal Bank of Canada's five-year, fixed-rate Samurai bond was sold with a coupon of 2.02 percent, well above a domestic five-year offering earlier this week from Mizuho Corporate Bank that offered a coupon of 1.295 percent.
Although the cost of raising funds in Samurai bonds has spiked along with tighter conditions in global credit markets, it is still lower than issuers would have to pay elsewhere because of Japan's low interest rates.
Since Goldman Sachs issued ¥148.5 billion of bonds in late January, there have been no U.S. Samurai bonds offered as credit losses among U.S. banks escalated.