The bankÆs main activities consist of funding Japanese public and private sector projects overseas.
Explicitly guaranteed by JapanÆs ministry of finance and due March 2013, the deal pays a coupon of 3.375% and has a re-offer price of 99.554, giving a spread of 89.3bp over the 2.75% February 2013 US Treasury. The pricing is equivalent to Libor minus 6bp. Fees were 10 cents (0.1%).
Earlier this year, JBIC realised it had a funding shortfall and contacted joint leads JPMorgan and Merrill Lynch at short notice. Corporate Japan has to put its house in order by the end of the fiscal year, and the bank realised it had to act fast.
ôFortunately, the bank has done its homework in a very thorough fashion. Last year, it issued a $1 billion global bond, during which time it met many foreign investors. As a result, it was relatively easy to get this issue away,ö notes one JPMorgan banker who worked on the deal.
51% of the demand came from central banks, 25% from asset managers and 17% from pension funds and insurance companies. Banks made up the balance. Demand was strong, and the leads closed the book as soon as demand matched the supply.
ôCurrently, short-to-mid term maturity is the strongest spot, and the euro format is the most flexible in terms of preparation, and flexibility is the most important condition under current market conditions,ö says a Merrill Lynch banker. Indeed, the Eurobond market has much shallower disclosure requirements since it is only open to institutional investors. That means the retail segment doesnÆt need to be protected. An onshore issue in the US would have had much more onerous disclosure requirements.
There is no foreign exchange risk involved, as the bank lends to projects in dollars, say the bankers.
JBIC is one of the most active Japanese government-supported issuers in the international markets. ôThe bank is committed to improving its brand image through a regular issuance programme,ö says the JPMorgan banker.
The lead managers took some soundings among international investors and a pricing level of Libor minus 6bp was rapidly agreed upon, after the leads went out with a range of between minus 5bp and minus 7bp. Remarkably, this is the same level of pricing the bank achieved for its $1 billion global bond last November, according to bankers who worked on the deal.
ôThere is clearly a flight to quality out there, and a triple-A rated entity with a government guarantee met that requirement,ö says the JPMorgan banker. Indeed, the bankers estimate that the attraction of the credit would outweighed the fact that a $500 million issue would be less liquid than the more frequently seen $1 billion for such government-linked entities.
Sentiment was generally perceived as not having been helped by the Federal ReserveÆs decision earlier this week to allow US banks to swap triple-A rated mortgage bonds into Treasury bonds for a limited period. Indeed, on Thursday, the yen strengthened to below 100 against the dollar for the first time in 13 years- a clear sign that the market has little faith in the FedÆs efforts to prevent a US recession, according to analysts. ôEven for JBIC, we had to be very careful,ö says the JPMorgan banker.
The sterling market and the yankee market were also considered but quickly discarded. ôThe sterling market sometimes offers very attractive terms, but itÆs very shallow,ö says the JPMorgan banker. ôAnd in the yankee market, pricing would have been far more expensive.ö The Eurodollar market was sufficiently deep to make the deal successful, he says.