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Covered bonds: Shinsei plans a first for Japan

But lack of legislation might deter traditional investors.

With so many issuers coming to market in January, and with the havoc in other sectors of the debt market prompting investors to swallow such high levels of issuance, some banks that had previously only been considering a covered bond programme have decided to go ahead with one.

In Japan, the feeling among covered bond participants is that while the country’s financial institutions have for a long time had the capacity to issue covered bonds, they didn’t think that there was enough interest in the domestic market to justify doing so. That theory is set to be tested as Shinsei Bank is planning the first covered bond from Japan. The ¥50 billion ($479.9 million) bond will have a maturity of 10 years and is expected to launch in March. As there is no specific covered bond legislation in Japan, the issue is to be a structured covered bond, which allows the issuer a measure of structural flexibility. It would appear that Shinsei has taken full advantage of that opportunity. "This is not a covered bond," says one covered bond head. "There is a lot of risk that investors are expected to absorb. They don’t even have priority over the bank’s other creditors in the case of bankruptcy."

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