Samurai bonds: Japan interested in Latin American diversity

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By:
Jason Mitchell
Published on:

Issuers embrace samurai opportunities; Attracted by market that is usually open

América Móvil, the biggest Mexican telecommunications company, has become the latest entity from Latin America to issue a samurai bond (a yen-denominated bond issued in Japan by a foreign borrower). More corporates and sovereigns are expected to follow suit next year, as the Japanese market remains more open than those of the US and Europe.

On October 21, América Móvil issued two samurai bonds totalling the equivalent of $156 million. One of the tranches, with a total face value of ¥6.9 billion ($91 million) and a coupon of 1.23%, has a tenor of three years. The other has a face value of ¥5.1 billion, a coupon of 1.53% and a five-year tenor. Mizuho and Morgan Stanley were the bookrunners.

According to Dealogic, since October last year, five other sovereigns and supranationals have issued samurai bonds. On October 20 last year, United Mexican States issued one for ¥150 billion. Nomura, Morgan Stanley and Mizuho acted as bookrunners. This had a tenor of 10 years and the coupon was 1.51%.

Latin American Samurai Debt Issuance
Since 2010
Pricing dateValue $mln (face)IssuerYears to maturityCoupon
20 Oct ’101,788United Mexican States101.510
21 Oct ’10176Corporación Andina de Fomento - CAF51.820
21 Oct ’10176Corporación Andina de Fomento - CAF3.31.560
18 Jan ’11501Republic of Panama101.810
27 May ’11495Oriental Republic of Uruguay101.640
10 Jun ’11123Corporación Andina de Fomento - CAF41.000
24 Jun ’11104CABEI122.410
21 Oct ’11156América Móvil SAB de CV31.230
21 Oct ’11156América Móvil SAB de CV51.530
Source: Dealogic

Corporación Andina de Fomento (CAF), a Latin American development bank headquartered in Caracas in Venezuela, has issued three recent samurais. On October 21 last year it offered two tranches with a total face value equivalent to $176 million. One tranche for ¥4.6 billion had a tenor of five years with a coupon of 1.82%; the other tranche, for ¥9.8 billion, had a tenor of 3.3 years with a coupon of 1.56%. Mizuho and Nomura acted as bookrunners.

On June 10, CAF offered another samurai, with a face value of ¥10 billion. It had a tenor of four years and a coupon of 1%. Daiwa Capital Markets acted as bookrunner. Also in June, the Central American Bank for Economic Integration, the leading development bank in Central America, issued a samurai with a face value of ¥10 billion. It had a tenor of 12 years and a coupon of 2.41%. Its bookrunner was Nomura.

Latin American sovereigns are also raising debt in Japan. In January, the Republic of Panama issued a samurai with a face value of ¥41.5 billion, a tenor of 10 years and a coupon of 1.81%. Morgan Stanley and Daiwa Capital Markets were the bookrunners. And in May this year, Uruguay issued a bond in Japan with a face value of ¥40 billion, a tenor of 10 years and a coupon of 1.64%. The bookrunners were Nomura and Daiwa Capital Markets.

"One of the main reasons why we issue in Japan is that we like to be present in different markets," says Gabriel Felpeto, director of financial strategy and international issuance at CAF. "We do not like to be concentrated in one market. This means that if there is a crisis in one market, we still have access to others. The Japanese one is also very stable. It has been open for us on a continuous basis."

He adds that Japanese investors tend to be quite conservative and that not that many sovereigns, supranationals and corporates from Latin America have access to the investor pool. Most entities that issue in Japan are backed by the Japan Bank for International Cooperation. It guarantees all the capital and most of the interest payments on the bonds, helping them to become attractive to Japanese investors.

Only entities with very good credit ratings can access the Japanese market without the bank’s backing: CAF and América Móvil were both able to do this. The republic of Uruguay hopes to be able to return to the market.

CAF says that it normally issues samurai bonds for the Japanese institutional investor market. However, its June offering was directed at more than 5,000 retail investors, mostly high-net-worth individuals but also open to the wider retail investor pool. It became the first Latin America entity to make an offering to Japanese retail investors.

"The Japanese market seems to be fairly open most of the time, whereas other markets can have more limited windows"

Gabriel Torres, Moody’s

Gabriel Torres, a Latin American credit ratings analyst at Moody’s

 

"The main reason Latin America corporates, sovereigns and supranationals have been turning to Japan is that they want to expand their number of potential investors," says Gabriel Torres, a Latin American credit ratings analyst at Moody’s. "They want to have as many options as they can in the future. The Japanese market seems to be fairly open most of the time, whereas other markets can have more limited windows.

"Uruguay managed to issue at a better coupon rate than Panama despite the central American country having a better credit rating than the South American one. One of the reasons for this could be that Uruguay issues rarely and so its bonds have a scarcity value. Many investors wanted to bid for some of that paper."

América Móvil turned to Japan because of the current difficulties in issuing in the US and European markets. It became the first non-financial corporate in Latin America to issue a samurai. It needs to raise capital to finance the acquisition of $6.5 billion of shares in Teléfonos de México (Telmex), the Mexican telecommunications group.