Barclays Sells Most Samurai Bonds Without State Support Since Lehman Fell

Barclays Plc’s banking unit raised 143 billion yen ($1.7 billion) from the biggest sale of Samurai bonds without a government guarantee since Lehman Brothers Holdings Inc. collapsed.

Barclays Bank Plc sold 57 billion yen of three-year, 1.04 percent bonds priced to yield 55 basis points more than the yen swap rate, and 51 billion yen of five-year, 1.29 percent bonds with a 70 basis-point spread, according to data compiled by Bloomberg. The lender also sold 25 billion yen of three-year floating-rate notes yielding 70 basis points more than the three-month London interbank offered rate, and 10 billion yen of five-year notes with an 85 basis-point spread.

“Investors have been re-examining Samurai bonds,” said Hiroaki Fujioka, a senior credit analyst at Daiwa Securities Capital Markets Co. in Tokyo. “Given the low yields for government bonds and narrow spreads for corporate bonds, they have to choose either to extend maturities or to take risks.”

Lehman defaulted on 195 billion yen of Samurai bonds when it filed for bankruptcy in September 2008, a collapse that froze global credit markets and curbed investor demand for all but the safest government debt. Today’s sale is the biggest without a sovereign guarantee since Citigroup Inc. sold 186.5 billion yen of three-year, 2.66 percent Samurai bonds to individual investors in June 2008, Bloomberg data show.

Samurai Sales

Sales of Samurai bonds, or yen-denominated notes issued in Japan by overseas borrowers, climbed to 1.024 trillion yen this year from 917 billion yen in the same period of 2009, the data show. The market closed for more than four months after Lehman’s collapse until Westpac Banking Corp. sold 201.3 billion yen of notes backed by the Australian government.

The extra yield investors demand to own Samurai bonds instead of similar-maturity government notes dropped 4 basis points to 117 basis points yesterday, the lowest since Feb. 6, 2008, as the spread for Japanese corporate bonds averaged 30 basis points, according to indexes compiled by Nomura Securities Co. A basis point is 0.01 percentage point.

The yield on the benchmark 1 percent government bond due September 2020 rose 4 basis points to 1.1 percent as of 10:51 a.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker.

Investor confidence in the financial health of European banks after July stress tests combined with demand for yield to spur interest in Barclays’ Samurai bonds, Kenji Setogawa, a debt syndicate director at Barclays Capital Japan Ltd., said in a telephone interview.

‘Feeling Comfortable’

“Japanese investors have started feeling comfortable about European credit,” he said. The tests were intended to reassure investors amid Europe’s sovereign debt crisis and gauge whether lenders could withstand losses on their government bond holdings.

Mizuho Securities Co., Nikko Cordial Securities Inc. and Barclays Capital Japan helped Barclays Bank issue its yen debt.

Samurai notes returned 2.25 percent this year after a record 6.757 percent loss in 2008 and a record 5.97 percent gain in 2009, according to Bank of America Merrill Lynch’s Japan Samurai index.

HSBC Holdings Plc’s banking unit is planning to sell at least 95 billion yen of five-year Samurai bonds as soon as tomorrow, according to a person with knowledge of the sale.

HSBC Bank Plc told investors it plans to sell at least 70 billion yen of fixed-rate bonds priced to yield 40 basis points more than the yen swap rate, said the person, asking not to be identified as the information is private.

The lender also plans to sell at least 25 billion yen of similar-maturity floating-rate notes yielding 55 basis points more than three-month Libor for yen, the person said.

To contact the reporters on this story: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net Takashi Ueno in Tokyo at tueno@bloomberg.net

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