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.

MUFG Group conducted a nondeal roadshow in Australia in the week beginning 9 September. The credit is a known quantity in the local market as MUFG Bank Sydney Branch is a regular issuer: it has printed A$2.7 billion (US$1.8 billion) in three deals since September last year.

Investors at the roadshow were therefore less focused on the credit itself than on the issuance strategy of switching to group level for total loss-absorbing capacity (TLAC) issuance and green-bond format, according to David Jenkins, Sydney-based head of sustainable finance at National Australia Bank (NAB) – a lead alongside ANZ, Morgan Stanley, MUFG Securities and Westpac Institutional Bank.

“Leveraging off the name recognition and existing investor sponsorship of the opco, the issuer was able not only to generate strong support from existing domestic investors but also tapped into a different buyer base as well,” adds Josh Sife, director, capital markets origination at NAB in Sydney.

MUFG Group had previously priced TLAC-compliant deals in the US dollar and euro benchmark markets, and the issuer wanted its Australian dollar debut to be competitive with these established lines. The eventual result achieved this goal according to Matthew Carr, Sydney-based managing director and head of debt capital markets, Australia and New Zealand at MUFG Securities.

“It was pleasing to see a pricing outcome which, allowing for curve adjustment, effectively saw the transaction price at fair value and flat to where an equivalent new five-year US dollar issue would price,” Carr tells KangaNews. “This compares well on a relative basis with previous peer-group issuance in Australian dollar holdco format.”

Green context

The other focus of transaction marketing was MUFG Group’s decision to offer a certified green bond. This is the first time an international bank has tapped the Australian dollar market for a green bond and the leads say the format attracted a lot of interest.

“We were very positive demand would be there but it is a chicken and egg situation – there needs to be a transaction and investors need to be comfortable around the ESG credentials of the issuer and the deal,” Jenkins says.

The deal was issued under MUFG Bank’s global green-bond framework, supported by a second-party opinion from Sustainalytics, and aligns with the 2018 International Capital Market Association green-bond principles.

Deal pricing

Issuer name: Mitsubishi UFJ Financial Group
Issuer rating: A-/A1/A
Issue rating: as issuer
Pricing date: 24 September 2019
Maturity date: 1 October 2024
Volume: A$100 million (US$67.6 million) fixed & A$400 million FRN
Book volume: close to A$1 billion

Margin: 125p/mid-swap & BBSW
Margin at launch: 128bp/mid-swap & BBSW
Geographic distribution: see chart 1
Distribution by investor type: see charts 2 and 3
Lead managers: ANZ, Morgan Stanley, MUFG Securities, National Australia Bank, Westpac Institutional Bank

Source: National Australia Bank 25 September 2019

Source: National Australia Bank 25 September 2019

Source: National Australia Bank 25 September 2019

Unusually for an Australian dollar green bond, MUFG Group’s transaction is not certified by the Climate Bonds Initiative (CBI). Jenkins says this is in line with the five previous green deals the issuer has placed, adding: “It was always intended to be issued under the MUFG Bank green-bond framework so the issuer didn’t consider a one-off CBI certification for this specific transaction.”

Jenkins adds that the assets being funded are “easily understood and verifiable” green projects, specifically lending for global renewable-energy projects in the wind and solar space as well as green buildings owned by JREITs, including several renewable-energy projects in Australia.

The issuer had approximately US$1 billion of eligible projects available for allocation to green-bond issuance ahead of the deal, including around US$300 million of Australian projects.

“Investors are increasingly focused on green financing from issuers and having a green aspect to this transaction was very well received,” Carr comments. He points out that a growing proportion of Australian bond investors have some sort of ESG overlay even if they are not ‘dark green’ mandated, which allowed 65 per cent of the MUFG Group deal to be placed with green investors.

“While the deal tapped into pools of dark green money, it also gave the deal additional profile which drove light green and vanilla investors to participate as well,” Sife adds. “From the roadshow there was clearly an eagerness from investors to get more involved in the green-bond market – and this transaction gave them the opportunity to do so.”