Samurai loans a new addition to the Australian corporate funding toolkit
According to senior executives at MUFG Bank (MUFG), appetite for Australian assets from Japanese and Asian investors has shown no sign of slowing. The range of funding markets open to corporate Australia continues to expand as a result, with the burgeoning Samurai loan market a particular focus for the bank.
While bank debt and the domestic, euro, US 144A and US private placement (USPP) bond markets remain the primary sources of debt for corporate Australia, in recent years the Asian-focused US dollar Reg S bond market has worked periodically while some issuers have more recently entered the the Samurai loan market.
“The markets Australian corporates have access to continues to expand,” Drew Riethmuller, managing director and head of corporate and institutional banking, Oceania at MUFG, told a media briefing at MUFG, on 30 April. “There is very strong appetite across the globe for Australian corporate credit, based on a corporate Australia that has been deleveraging, is highly regulated and has a market backdrop of 27 years of uninterrupted growth.”
Riethmuller says the Samurai bond market has been fertile ground for major-bank issuance historically but yen liquidity has subsequently broadened to include corporate Australia in loan format. “We have executed a range of transactions during the last 18 months that have introduced new liquidity – some of which is from Japan,” he comments. “This is long-dated liquidity which is competitive with what the USPP market can offer Australian corporates and also with traditional bank debt.”
Riethmuller says a number of issuers from the infrastructure, renewables, oil and gas, and electricity-distribution sectors have accessed this market and have been welcomed with volume of “reasonable substance”.
Issuers have printed up to A$1 billion (US$698.9 million) and more on occasion, Riethmuller reveals. “We would not have seen this outcome three years ago. It is driven by demand from banks and insurance companies in the region looking positively at Australia from a relative-return and also a structuring perspective.”
Constructive tone
According to Randy Chafetz, managing executive officer and deputy chief executive, global corporate and investment banking at MUFG Bank in Tokyo, support for Australian assets is a combination of a hunt for relative yield and comfort with Australia’s macroeconomic backdrop.
Core investors in Samurai loans have historically shied away from offshore risk. However, Chafetz reveals that a lack of domestic supply, a challenging ecomomic environment in Japan and desire for incremental yield have driven Japanese bank investors to consider expanding their product set.
“If you think about the negative interest-rate environment Japanese regional banks are in, Australia provides them with attractive investment opportunities in a jurisdiction where they feel comfortable from a risk standpoint. These investors typically do not want to take undue risk, but Australia falls into a bucket where they are comfortable.”
Increased willingness to engage with Australian corporate product is demonstrated by growth in the number of institutions participating in loans and attending roadshows, Chafetz continues. “There was a period where we would get a few banks and one or two other institutions in a room on a roadshow, whereas now we’re filling rooms with potential investors. While a year ago three or four entities might fund the transaction, we now see loans with 20 or more investors globally looking at transactions.”
For this reason, Chafetz expects the Samurai market to remain constructive for MUFG’s Australian and New Zealand clients. “The underlying institutional or bank investor continues to be very flush and, to the extent that the market makes sense from a pricing standpoint, we expect it to remain a viable funding option for corporates.”
Riethmuller adds: “The typical Samurai loan investor is broadening the asset types it is looking to support and is increasing its exposure to Australia and New Zealand. The number of investors that are looking at Australia and New Zealand transactions continues to grow, and we are seeing increasing appetite among regional banks and insurers.”
Like the USPP market, Japanese investors are also increasingly willing to offer currency other than yen, too. “We have seen appetite for borrowers’ local currency increasing among Japanese investors,” Riethmuller says. “They are more willing to take Australian dollars directly, and as one of the most highly traded currencies in the world they are comfortable with the liquidity.”
Riethmuller says offshore investors are keen to understand perceived risks to the Australian economy, but he is not concerned that headlines are having a negative impact on Japanese investor demand for Australian dollar debt product. “The only area where investors consistently seek greater clarity is on Australia’s energy policy,” he says.
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