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BNP Paribas Leads Record Uridashi Sales Tied to SoftBank

BNP Paribas Leads Record Uridashi Sales Tied to SoftBank Shares
The SoftBank Corp. logo adorns a window at the company's store in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Sales of uridashi notes tied to SoftBank Corp. shares surged to a record last month, led by BNP Paribas SA, as the Japanese mobile-phone carrier clinched a deal to buy Sprint Nextel Corp.

Issuance jumped more than six times to 7.32 billion yen ($74 million) in June from May, the most for uridashi securities linked to SoftBank’s stock in any month, according to data compiled by Bloomberg going back to 2004. BNP Paribas sold 6.62 billion yen of the reverse-convertible notes in three offerings starting on June 25, four days after Dish Network Corp. said it would no longer compete with the Japanese carrier to buy Sprint.

Shares of SoftBank have more than doubled since its plan to buy a controlling stake in Sprint was announced in October. Shareholders of the third-biggest U.S. carrier on June 25 approved SoftBank’s sweetened $21.6 billion offer, and the Federal Communications Commission cleared the deal this month.

Officials at BNP Paribas weren’t immediately available to comment on the notes, said Christine Chan, a Hong Kong-based spokeswoman for the bank.

The average 12-month price estimate on the stock is 6,204 yen, compared with today’s close at 5,760 yen, according to data compiled by Bloomberg. BNP Paribas analyst Hiroshi Yamashina last boosted his target price on the shares by 79 percent to 5,200 yen on April 24, raising his rating to “buy” from “hold,” the data show.

The buyer of a reverse convertible receives a fixed coupon and risks principal only if the linked stock drops by more than a buffer that can be 20 percent or more.

High Volatility

Such notes can be more attractive to investors when expected volatility in the underlying stock increases, as that boosts the value of the embedded put option and allows the issuer to sweeten terms. The three-month at-the-money implied volatility for SoftBank jumped 8.8 to 60 at the end of June from the end of May, almost twice as high as the gauge for the Nikkei 225 Stock Average index.

Uridashi notes are issued outside Japan and sold to ordinary investors in the nation.

Securities tied to SoftBank’s debt meanwhile have dried up this year, dropping to zero issuance from 9.8 billion yen in 2012, according to Bloomberg-compiled data. Investors buying such products take default risks of the underlying bonds in exchange for higher coupons.

Standard & Poor cut SoftBank’s credit rating to junk this week, citing exposure to “intense competition” in the U.S. telecommunications market. The acquisition of Sprint will more than double SoftBank’s total liabilities to 9.35 trillion yen from 4.42 trillion yen last fiscal year, according to Bank of America Merrill Lynch.

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