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Hybrid capital: set to be big in Japan?

Investment banks in Japan are preparing to compete for a share of the lucrative market for corporate hybrid capital issuance that they hope will develop following retailer Aeon’s pioneering 50-year security.

Ken Koizumi, Goldman Sachs Koizumi, Goldman Sachs: “corporates have got excited about this new capital structure”

Foreign houses that have international experience in structuring these complex instruments will have an early advantage, with bankers at several rival houses confirming the suspicion that Goldman Sachs did the bulk of the work on the Aeon deal, with co-lead Mizuho being less directly involved. The market is not taking off at the speed some had hoped for, however. Despite sustained pitching to companies that could benefit from the cheap equity credit that hybrids provide, no further deals have materialized. “Everyone is talking about this new market,” says Ken Koizumi, managing director in debt capital markets at Goldman Sachs. “Moody’s and Standard & Poor’s have adopted a new rating method for hybrids, and corporates have got excited about this new capital structure.”

Plenty of buzz, but so far no takers. In June this year Euromoney met with bankers at Merrill Lynch who were eager to develop hybrid capital issuance in Japan; they had actually arranged a perpetual hybrid deal with no step-up for NEC back in 2001.

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