RBS issues inaugural Samurai bond

Royal Bank of Scotland raises $1.3 billion in the Japanese market after the initial offer is upsized.
Royal Bank of Scotland (RBS) has become the second UK bank to tap JapanÆs investor base, raising Ñ141 billion ($1.3 billion) on Tuesday. The only other UK bank to sell bonds in Japan was Barclays Bank, which raised Ñ50 billion through a Samurai deal in 2007. The RBS bond was lead managed by RBS in Tokyo and Daiwa Securities SMBC.

The deal will bring welcome liquidity from a new source to RBSÆs balance sheet, and raise the bankÆs profile in the region. ôSince 2005, RBS has launched a major push in the region, and Japan is considered a key part of that,ö says John Wade, RBSÆs joint head of syndicate Asia-Pacific in Tokyo.

Last year, RBS, the 13th largest bank in the world by revenue, was part of a consortium that bought Dutch banking group ABN AMRO for a total of $100 billion. Shares in the bank have fallen 30% year-to-date, partly on fears that RBS over-extended itself with that acquisition. Wade says that the marketing period of the deal gave the bank a good opportunity to tell its story to the Japanese investor base and differentiate itself from other financial players.

In a global environment where financial institutions are finding it hard to receive a warm reception, Japan is one of the few bright spots. Japanese investors tend to prefer companies with very high-profile names and good reputations. Such issuers can offer a welcome yield pick-up over local fixed instruments, while being regarded as safe. Very few issuers are less than triple-A in the Samurai market.

ôThe effect on our capital raising is very beneficial. Japanese investors do not cannibalise our offerings in the financial markets, since they prefer yen products. And by giving us an alternative investor base, we benefit from the competition that emerges with our lenders in the euro and dollar market,ö says Wade.

The Aaa/AA/AA rated bonds come in four series, namely: a five-year Ñ55 billion tranche priced at yen swaps +95bps; a three-year Ñ20 billion tranche priced at yen swaps +79bps; a 10-year Ñ11 billion tranche priced at yen swaps +100 bps; and a floating-rate five-year Ñ55 billion tranche priced at three-month yen Libor +95bps.

UK banks have not taken to the Samurai market as enthusiastically as their peers in the US and Australia who have been coming here for years, mainly because they are not so well known in Japan. Year-to-date, the US is the biggest Samurai issuer with $5.45 billion, followed by Australia with $4.7 billion. The Netherlands and Canada take third and fourth place. Big names that have come to the market this year include Citigroup with a $1.73 billion offering, which is the biggest deal of the year so far, and General Electric with a $1.48 billion issue. Overall, the total raised year-to-date is $17.7 billion, a sharp increase on last year.

The RBS trade appears to have gone smoothly, despite tumbling credit markets worldwide. Says one rival syndicate banker: ôThe deal seems to have gone very well for a debut issue, at least in terms of size and pricing versus CDS (credit default swaps). It looks like a good trade.ö

Since marketing of the deal started 10 days ago, global credit markets have done poorly on inflation fears. The iTraxx Series 9 index, which measures credit default swaps of European banks, has widened from 70bp to 93bp over this 10-day period. As a result, the bond was priced at the high end of the 85bps-95bps indicated range.

Nevertheless, Wade argues that this is an excellent result given the change in sentiment globally. ôWe have saved 10bp-15bp on what we would have paid in the non-yen markets,ö says Wade.

Pricing a bond in Tokyo tends to be different to London and New York, because there is less flexibility. Whereas US and UK investors can adapt to changing market conditions very quickly, this tends to take around one week in Tokyo.

ôThe key is to go in with a fair and reasonable range in the first place. At that point, investors will buy into the deal and be relatively unaffected by wider market changes,ö says Wade, adding that Japanese investors also don't pad their demand.

One deal that was used for comparison purposes by investors was the UBS Samurai, which raised $849 million on June 19. The fiveûyear deal was priced at Libor +120bp, with the steeper pricing reflecting the well-publicised sub-prime related problems at the bank. Rabobank, regarded as a top credit untouched by the credit market problem, raised $1.5 billion on June 4, at a price of Libor +48bp. ôWe were happy with the size of our deal. We went in looking to raise at least $1 billion and upsized it when we encountered decent demand,ö says Wade.

After the two debut deals by the UK banks, it will be interesting to see which other financial players decide to tap the Japanese markets. Australian and US banks may not have the markets quite so much to themselves much longer.
¬ Haymarket Media Limited. All rights reserved.
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