Bloomberg News

Daiwa Ousts Mizuho as Top Samurai Underwriter: Japan Credit

November 23, 2011

Nov. 24 (Bloomberg) -- Daiwa Securities Group Inc. topped Mizuho Financial Group Inc. as the biggest manager of Samurai bond sales as the cheapest yen funding costs relative to dollars in almost two years prompted record sales by Korean companies.

Japan’s second-largest securities firm arranged 419 billion yen ($5.44 billion) of the notes by overseas companies in the country this year, or 20.2 percent of the 2.07 trillion yen total, according to data compiled by Bloomberg. Sales increased as the extra yield for U.S. corporate bonds over Treasuries, compared with the equivalent for yen debt, widened to 151 basis points on Oct. 4, the most since January 2009, according to Bank of America Merrill Lynch indexes. Korean companies borrowed 377 billion yen, Bloomberg data show.

“For Koreans, the Samurai market has gained in cost- competitiveness compared with the dollar market,” Lee Young Jin, the head of debt capital markets at Daiwa in Seoul, said in an interview on Nov. 22. “Borrowers have also been catering to Japanese investors by providing returns that are more favorable than Japan domestic corporate bonds.”

Daiwa became the largest manager of Samurais for the first time since 2006 as South Korean borrowers from KT Corp. to Export-Import Bank of Korea reduced costs by issuing in Japan. The brokerage announced a third straight quarterly loss on Oct. 28 and cut more than 300 jobs.

Japanese Rivals

Daiwa captured 18 percent of the South Korean market for Samurai bonds, the biggest share since at least 1999, after managing no deals by the nation’s issuers last year, Bloomberg data show. The securities firm arranged 13 yen-denominated sales for Korean companies worth 65.8 billion yen, according to data compiled by Bloomberg.

Mizuho was the second-largest underwriter, with 18.8 percent of the Samurai market, and Mitsubishi UFJ Morgan Stanley Securities Co. came third, managing 16 percent of deals, according to Bloomberg data. Mizuho was the top arranger in 2010, and Mitsubishi UFJ Morgan Stanley the prior year.

Mizuho underwrote 14 percent of the Korean Samurai market and Mitsubishi UFJ had 11 percent, according to data compiled by Bloomberg.

Toshimitsu Okano, a spokesman for Mizuho in Tokyo and Mitsubishi UFJ Morgan Stanley’s spokesman Hiroaki Konishi declined to comment on Samurai bond sales.

Higher Yields

The gap between yields on Samurai bonds and domestic corporate debt climbed to the highest in a year this month after the Bank of Japan kept the overnight lending rate between zero and 0.1 percent to spur economic expansion. The spread widened to 102 basis points on Nov. 22 from 90 on Oct. 31, according to Bank of America Merrill Lynch indexes. Japan’s growth is forecast to slow to 2.1 percent this quarter in a survey by the Economic Planning Association, a government-affiliated body.

“Japanese investors are buying Korean Samurai bonds because their yields are higher than domestic bonds,” Toshiaki Takahashi, who manages 340 billion yen at Meiji Yasuda Life Insurance Co., said in a telephone interview from Tokyo on Nov. 18. Takahashi said he would buy “rare, healthy names” such as Korea Gas Corp., Posco and KT.

Daiwa’s first sale this year from a South Korean company was a two-year, 35 billion-yen Samurai bond issued by KT, the nation’s largest phone and Internet provider.

Daiwa also arranged Export-Import Bank of Korea’s 80 billion-yen bond in June, along with Bank of America Corp., Citigroup Inc., and Mizuho. The state-owned lender known as Kexim, the nation’s biggest seller of international debt, paid 50 basis points more than the yen swap rate for the two-year notes, a spread of 60 for the three-year bonds, and 73 for the five-year debt.

Kexim Borrows

“Japan is an important market for us because of its stability and ample liquidity,” Lee Jin Kyun, director at Kexim’s international finance department, said in a telephone interview from Seoul on Nov. 21. “As dollar borrowing conditions have fluctuated this year, we need to expand our funding sources.”

Elsewhere in Japan’s credit markets, Osaka Gas Co. hired Mitsubishi UFJ, Goldman Sachs Group Inc. and Mizuho for a 10 billion-yen sale of 10-year bonds next month, Mitsubishi UFJ said in a faxed statement.

Mitsubishi Logistics Corp. picked Mizuho and Mitsubishi UFJ Morgan Stanley to sell 5 billion yen of eight-year notes, and Daiwa to arrange a 5 billion-yen offering of 10-year securities, according to a release from Daiwa.

Yen Falls

The Markit iTraxx Japan index of credit-default swaps for 50 companies rose 9 basis points to 208 as of 8:39 a.m. in Tokyo, according to Deutsche Bank AG prices. The benchmark touched this year’s high of 233.4 on Oct. 5, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The yen rose to 77.08 against the dollar as of 12:42 p.m. in Tokyo. The central bank spent about 8 trillion yen on Oct. 31 to weaken its currency from the strongest since World War II, according to Barclays Plc and Totan Research Co.

The benchmark 10-year government bond yield changed little at 0.965 percent as of 12:44 p.m. in Tokyo, after touching 0.945 percent Nov. 18, the lowest in a year. Ten-year U.S. Treasury yields fell four basis points to 1.92 percent as of 1 p.m. yesterday in Tokyo. Japan’s markets were shut yesterday for a public holiday.

Korea Finance Corp. paid 85 basis points over the yen swap rate on Sept. 15 on 7 billion-yen of 1.36 percent notes due September 2016, according to data compiled by Bloomberg. The spread may be equivalent to a premium of about 165 basis points, or 1.65 percentage point, in dollar terms, based on the costs to swap yen- and dollar-interest rates and to exchange six-month London interbank offered rates for three-month Libor, the data show.

‘Good Pricing’

That compares with a premium of 231 basis points investors demanded on Sept. 15 on Korea Finance’s similar-maturity, 3.25 percent dollar-denominated bonds, according to Royal Bank of Scotland Group Plc prices.

“Daiwa’s strength is in its ‘sell-down’ ability,” Kexim’s Lee said. “They offer good pricing for us and build books swiftly with Japanese investors.”

In Seoul, Daiwa will keep its seven fixed-income bankers, despite 100 job cuts in Asia, Lee said. After ending a joint venture with Sumitomo Mitsui Financial Group Inc. on Dec. 31, 2009, Daiwa focused on boosting overseas operations.

“For Korean deals, they are aggressive,” Meiji Yasuda’s Takahashi said. “They took advantage of the rupture with Sumitomo Mitsui to focus their staff and money on Asia, and it paid off with some positive results this year.”

Daiwa helped underwrite Kexim’s 10-year $1 billion dollar bond in September, the first time it arranged a global sale in Korea. The brokerage also managed Kexim’s debut Uridashi bond, a foreign-currency security sold to Japanese investors, this month.

The focus by South Koreans on Samurai bonds helped counter a drop in issuance from European companies roiled by the debt crisis. The borrowers cut offerings 62 percent to 215 billion yen since June 30 from the same period a year ago, Bloomberg data show. Dutch lender Rabobank Nederland on Nov. 8 raised 89.5 billion yen, the first such sale by a European issuer since July.

“Japanese investors have shunned European financial borrowers,” and have been choosing Samurai issuers including Koreans instead, Takahashi said.

--With assistance from Takahiko Hyuga in Tokyo and Shingo Kawamoto in ??. Editors: Beth Thomas, Pavel Alpeyev

To contact the reporters on this story: Taejin Park in Seoul at tpark31@bloomberg.net; Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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