Rabobank is planning to launch the first ever Basel III-compliant Tier 2 samurai bond issue in Japan. The Dutch lender filed an amendment to its shelf registration last week with the Ministry of Finance in Japan to give investors time to become familiar with the new samurai Tier 2 trade. Although tenors have not been established, the Dutch lender is considering a dual-tranche 10-year bullet and 10-year non-call 5, meaning that the bond is callable from years six to ten.
“It’s that timeline that investors require here that essentially motivated us to at least file the amendment to get people reading and studying,” said Kazuhide Tanaka, head of long-term funding Japan for Rabobank in Tokyo. “”Mitsubishi took nearly three months before they actually priced theirs.”
Japanese investors such as asset managers, life insurers and trust banks are enthusiastic about buying higher-yielding T2s at a time when the Bank of Japan’s monetary easing programme has pressured local yields to ultra-low levels.
The main challenge will be to get Japanese investors comfortable with point of non-viability (PONV) clauses for European banks, which are governed by bail-in resolution regimes that are far less investor-friendly than in Japan.
Japan’s Deposit Insurance Law was amended last year to allow the government to inject capital into lenders before they get to the point of non-viability. This explicit support does not exist for European banks in general.
The popularity of the bond may be limited as banks investing in it will raise their risk-weighted assets, and stricter Solvency II laws may also prevent some insurers from investing. Another consideration is the recent downgrading of Rabobank by Standard & Poor’s on November 4 to A+ from AA-.
Bank of America Merrill Lynch, Daiwa, Mizuho, Nomura and SMBC Nikko will be joint bookrunners for the Rabo deal.
Deutsche
A Rabobank spokesperson told SRP that this is a similar structure to the first yen-denominated Basel III T2s issued by Mizuho and Mitsubishi UFJ Financial Group earlier this year. If successful, he said, this could give European banks that dominate the samurai pipeline a much needed boost as some of them are among the 30 lenders who may have to raise around $1trn of debt to meet proposed new standards from the Financial Stability Board (FSB).
European lenders are already under pressure to raise up to $600bn in subordinated debt to meet Basel requirements and also face competition from state-owned Chinese banks, which are expected to raise around $44bn in T2s at home and abroad by the end of 2015.
Deutsche Securities Inc. (DSI) launched a yen-denominated samurai bond issue for Deutsche Bank AG on November 7 which was issued by the bank’s London Branch.
“Amid high volatility in the market following the Bank of Japan’s announcement of further quantitative easing last week, the issue was met with robust demand from a broad range of investors, with close to 170 accounts across the book,” said DSI’s president Makoto Kuwahara. “DSI continues to support its overseas issuer clients in their financings in the Japanese market.”
The JPY133.1bn issue consists of 5-year floating rate, 3-year fixed rate and 5-year fixed rate tranches. The bond issue is priced at 100 with payment due by November 14, and will be rated A3, A and A+ by Moody’s, S&P and Fitch, respectively.
This JPY133.1bn issue reflects Deutsche Bank’s continued commitment to the market and issuance in yen with its largest samurai transaction since September 2007. The No.8 Fixed Coupon Bond is the single largest samurai tranche ever issued by Deutsche Bank at JPY71bn. DSI is serving as the bookrunner of this trio of samurai bonds.
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