October 31, 2011 2:28 pm

Rabobank to test Samurai bond market

Rabobank is testing Japanese investor appetite for European offerings of samurai bonds following key agreements at the eurozone summit last week to contain the escalating debt crisis.

The Netherlands-based bank could issue a minimum of Y50bn ($659.3m) of the bonds, according to a person familiar with the deal. Samurai bonds are yen-denominated debt issued by foreign entities.

The issue should be attractive to conservative Japanese institutional investors, as the bank has a triple A rating, but will probably issue at “relatively wide spreads” in comparison with domestic issues, Kazuhide Tanaka, head of Rabobank’s long-term funding in Japan said. He declined to comment on the possible size of the issue or what the spreads might be.

Domestic investors have been even keener than usual to tap the samurai market for the extra yield as a lack of supply in the domestic corporate bond market in the wake of the Tokyo Electric Power nuclear crisis has driven domestic spreads to extremely tight levels.

The disaster has not only blocked Tepco, as the utility is known, from tapping the corporate debt market, but all the other electricity supply companies with nuclear power plants, accounting for about a third of the entire market. Only Okinawa Electric Power, which has no nuclear plants, has managed to issue since the March 11 earthquake and tsunami.

But investors have also become picky over European financial institutions as the eurozone debt crisis has intensified, and will choose investments on a case-by-case basis depending on exposure to Greek and other periphery eurozone debt, bankers said.

Mr Tanaka noted that spreads across the market are wider since May, which was the last time Rabobank issued in the samurai market.

Further headwinds from the eurozone will be a key to whether the samurai market pulls ahead with the record issuance so far. Year-to-date the $21.8bn issuance just beats 2008, according to Dealogic. Euro-yen issuance on the other hand has been slow this year, with issuance so far reaching just $9.8bn, compared with last year’s $15.8bn

There has been lower issuance from US financial institutions this year, underscoring the importance of European issuance for the samurai market.

“By issuing and getting investors focused on Europeans names is one task here,” Mr Tanaka added. “By having a working and viable market, it helps me as I am one of the largest volume issuers in the Samurai market.”

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