By Chris Wright
Development Bank of Japan
Most observers expect a more orthodox policy of targeted interest rate increases to be implemented soon by the Bank of Japan. How will this affect your borrowing strategy?
As we are not an entity that raises profits by betting on the move of the yield curve, our chief strategy for managing interest rate risk is to match the timing of setting the interest rate for lending to that for borrowing. Therefore, the change of the BOJ’s monetary policy will not significantly affect our policy of constant, stable fund-raising.
What are your funding requirements for the financial year 2006? Does the yen offer the most attractive cost of financing for you at the moment?
We have a budget of ¥190 billion for government guaranteed euro bonds in the fiscal year 2006. Because the yen swap spread has got wider since the beginning of this year, the costs of foreign-currency-denominated bonds are not attractive for Japanese issuers that swap the proceeds into yen after issuance. This situation, however, makes the yen-denominated bonds unattractive for foreign investors (after-swap basis), the fact showing that it is not correct to assume the yen is the only currency.
How important is it for you to reduce your dependency on borrowing from the government? Is there a set target?
The extent to which we depend on government borrowing has steadily decreased to about 34% in the budget of fiscal year 2006 and it is understood that we may not be able to borrow directly from the government after 2008, when the transitional period for privatization starts. It is essential for us, therefore, to set a viable business model and convince investors to keep us fully funded in the near future.
Are you happy with your current foreign and domestic yield curves?
We have principally attained well-organized asset liability management through the effort to match the tenor for lending and that for borrowing. With relatively healthy financial situations, we do not have any concrete plans to change our liability structure drastically.
Japan Bank for International Cooperation
What are your funding requirements for the financial year 2006? Does the yen offer the most attractive cost of financing for you at the moment?
In FY2006 (from April 2006 to March 2007), we have a plan to fund ¥260 billion by FILP bonds in the Japanese market and ¥240 billion (approximately equivalent to $2 billion) by JGGB (Japanese government guaranteed bonds) as our budget in international capital markets. We intend to make preparations and determine the conditions for the next bond issuances reflecting the investor’s preference for liquidity, the financial needs within the budget, and the most attractive funding cost available at that moment.
You were among the first foreign institutions to be permitted to issue into the Thai domestic market. How successful has that been?
Since it was the first foreign government guaranteed bond in the Thai market, we made efforts to familiarize domestic investors with the JBIC and its bonds and attract more domestic investors to the rare investment opportunity for domestic currency bonds by high-quality foreign issuers through holding a roadshow in Bangkok. On the other hand, we continued to keep monitoring the conditions of Thai market for successful bond issuance concurrently.
The responses from domestic investors were quite satisfactory for us and enough to raise the planned volume of funds. Domestic pension funds and commercial banks are the main investors.
How important is it for JBIC to expand its investor base, and what measures are you employing to achieve this?
We consider it important to enlarge our investor base in every bond issuance because there has been increasing importance for fund-raising in the international capital markets with the growing volume of lending in various foreign currencies in recent years. To this end, we continue to provide information on a simple and constant basis through IR activities and other opportunities.
We also consider it important to gain recognition from more investors through pursing fair pricing for both investors and ourselves, as well as keeping our presence in the international capital market with our top quality and high liquidity bonds on behalf of JGGB.
Your $650 million March 2016 Eurobond attracted a lot of investor interest. What was the thinking behind the unusual size of the deal, and do you have plans for a larger and/or more liquid issue?
Basically, we consider it important to reflect investors’ preference for top quality and high liquidity for their portfolio to determine the basic conditions of each bond. However, we also have to take into consideration the budgetary volume of government-guaranteed bonds issuance approved by the Diet we mentioned before and how much we should raise funds to meet the financial needs.
