Nomura Retaking Top Samurai Spot Sees Bank Buffers as 2016 Theme

  • Brokerage rises to first from fifth in Samurai underwriting
  • Tier 2 debt sales more than tripled to 167.5 billion yen

Nomura Holdings Inc., which reclaimed the top spot for underwriting Samurai bonds last year, says 2016 will be marked by bank capital-boosting debt that has offered yields seven times what local government notes pay.

Japan’s largest brokerage managed 364.9 billion yen ($3 billion) of offerings by overseas issuers for an 18.7 percent share, followed by Morgan Stanley at 17.8 percent, according to data compiled by Bloomberg. Sales fell 25 percent from a record in 2014 to 2 trillion yen last year, even as lenders including Societe Generale SA and Credit Agricole SA issued their first yen bonds that may count as capital under new banking rules.

Subordinated Samurai bonds sold by the French banks offered Japanese investors some of the highest-paying yen-denominated debt in 2015 with coupons exceeding 2 percent. Global regulators said in November that the world’s biggest banks may need to raise as much as $1.2 trillion under the rule for total loss-absorbing capacity, or TLAC, aimed at avoiding future government bailouts. That’s on top of the additional capital lenders need under tougher Basel III regulations.

“In the current yen bond environment there aren’t that many products that offer investors coupons of about 2 percent,” said Akihiro Igarashi, an executive director at Nomura’s syndication department in Tokyo. “Investors who see that as attractive are buying and their numbers are increasing.”

Reclaiming No. 1

Daiwa Securities Group Inc., which led Samurai underwriting in 2014, fell to fourth position behind Sumitomo Mitsui Financial Group Inc., while Nomura moved up four places.

The Financial Stability Board, created by the Group of 20 nations in the aftermath of Lehman Brothers Holdings Inc.’s collapse, said in November that most systemically important banks must have liabilities and instruments “readily available for bail in” equivalent to at least 16 percent of risk-weighted assets in 2019, rising to 18 percent in 2022. Lenders in emerging markets were given a longer period to meet the requirements.

Morgan Stanley said in a report last month British banks will ramp up issuance of senior unsecured bonds at the holding company level. Lenders such as Societe Generale and Rabobank will probably continue to sell more lower-level Tier 2 debt in 2016 as some issuers seek to offer greater support to senior bondholders, it wrote.

‘Higher Spreads’

Sales of subordinated Tier 2 notes more than tripled to 167.5 billion yen in 2015 with France’s BPCE SA paying investors a coupon of 2.263 percent to buy its 10-year debt. Barclays Plc sold its first senior Samurai bonds that may be written off in a bank resolution in September, paying 0.823 percent on five-year notes. That compares with a yield of 0.035 percent on Dec. 30 for Japanese government debt of the same maturity.

“Samurai bonds offer higher spreads than local bonds and investors are buying them to boost returns so demand is only likely to increase,” said Yutaka Ban, a chief credit analyst at SMBC Nikko Securities Inc. The ability of the market to absorb bank-capital debt will be a focal point this year, he said, adding that subdued lending in Europe and a dearth of U.S. issuers may mean Samurai sales decline or only gain slightly.

The benchmark 10-year JGB yielded 0.27 percent on Monday, while the average yield on Japanese corporate bonds was 0.31 percent at the end of last year, according to Bank of America Merrill Lynch data.

Funding Diversification

BPCE was the biggest issuer of Samurai debt in 2015, raising 216.3 billion yen in three sales. It was followed by Credit Suisse Group AG and Standard Chartered Plc, which debuted its first Samurai bond. Financial organizations, a category that includes state institutions, increased their share of issuance in 2015, with 90 percent of sales, up from 84 percent a year earlier.

European borrowers sold 73 percent of Samurai debt, compared with 61 percent in 2014. BPCE, Credit Agricole and Credit Suisse tapped Japanese investors in June and July even as concerns about a possible default by Greece roiled overseas debt markets. Non-European issuers included a 100 billion yen sale by Indonesia, while Royal Bank of Canada sold its first Samurai since the global credit crisis.

“Diversification of funding remains undoubtedly a key point for issuers,” said Nomura’s Igarashi. “The Samurai market proved its worth in that sense in 2014, and even more so last year.”

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