MUFG Group’s green light for Australia
Improved relative pricing and a desire to diversify a substantial total loss-absorbing capacity (TLAC) requirement led Mitsubishi UFJ Financial Group (MUFG Group) to print its debut Australian dollar benchmark deal in September. The issuer is putting its green-bond-qualifying assets behind its TLAC programme in a bid to maximise the participating investor base.
KangaNews spoke to Ryusuke Kobayashi and Junse Yamada, both vice presidents in MUFG Group’s office of the CFO in Tokyo, about the deal, the issuer’s TLAC programme, the role of the Australian dollar market, green bonds and a Japanese take on environmental, social and governance (ESG) factors – at bank and societal level.
Transaction details, stats and lead-manager insights
All the key information about Mitsubishi UFJ Financial Group (MUFG Group)’s debut benchmark in the Australian dollar markets including book data and perspectives on the development of a green-bond market for global bank issuers in Australian dollars.
How did you reach the conclusion that the Australian dollar market would be suitable for MUFG TLAC issuance?
As a result, MUFG’s TLAC ratio is currently just more than 18 per cent against the minimum requirement of 16 per cent by the Japanese Financial Services Agency. But the requirement is going up to 18 per cent from the end of March 2022 and we want to have a 2 per cent buffer above this level.
Of course we are very conscious of the potential for market disruption and the unpredictability of various political situations, especially as US dollars is our main currency. To achieve our target, we have been seeking opportunities to diversify the currency mix and to enhance our investor base.
We took the view that Australian dollars would be a good diversification currency because we are aware that the investor base is very different to that for US dollars.
What were your pricing expectations going into the transaction and how did Australian dollar pricing stack up on an international basis?
“The Australian Prudential Regulation Authority announcement on Australian TLAC changed pricing, to the extent that we were ultimately able to issue roughly flat to our US dollar curve. It was good to get diversification that was also cost effective.”
Speaking of demand, what sort of participation did you get from Australian domestic accounts?
We believe we have completed our goal of making ourselves known and now we want to build demand. We received a positive demand from the investors we met and there were certainly no issues with MUFG as a credit.
Do you believe issuing Australian dollars off a Kangaroo programme rather than in EMTN format might help boost engagement from domestic investors?
This was also a debut Australian dollar green bond for MUFG – and the first benchmark in the currency from any international financial institution. How active is MUFG as a green-bond issuer globally?
There is a perception that Japan is a long way behind on ESG but actually I think that is only true in one respect. It is slow coming through in markets and in corporate structure, but actually sustainability is quite deeply embedded in the Japanese mindset and in behaviour. This is a country that has a long history of confronting resources scarcity. We hope that our ESG engagement pushes Japan’s ESG movement to a higher level, like that in Europe and Australia.
What was your perception of Australian investors’ level of sophistication when it came to ESG and green bonds?
“There is a perception that Japan is a long way behind on ESG but actually I think that is only true in one respect. It is slow coming through in markets and in corporate structure, but actually sustainability is quite deeply embedded in the Japanese mindset and in behaviour.”
We understand that some of the assets in the green-bond pool are Australian domiciled. Is this correct?
Most Australian green-bond issuances uses Climate Bonds Initiative (CBI) certification. This is not part of MUFG’s green-bond framework globally, but were you tempted to use it when addressing the Australian dollar market?
What about plans for future Australian dollar issuance by MUFG Group? Do you hope to bring transactions to market regularly?
Would MUFG consider issuing green bonds from its Sydney branch?
However, provided we maintain discipline in our framework this isn’t technically necessary. A bigger question for us is what is the best use of our green assets. We have a big TLAC requirement at the moment and we think being able to offer green TLAC product is valuable for the purposes of building our regulatory capital position.