QP Samurai: Flood of yen bonds unlikely
Dubai, August 5, 2012
By David French
Qatar Petroleum is set to sell its maiden yen-denominated bond this week in a deal that would raise the profile of Middle East credits among Japanese investors.
But the bond may herald a trickle rather than a flood of yen issues from the Gulf.
State-owned QP aims to raise around $1 billion-equivalent with a privately placed, 10-year bond guaranteed by the Japan Bank for International Cooperation (JBIC), pricing on Thursday, said a source with knowledge of the deal, who declined to be named because of the matter's sensitivity.
It would be a rare international offering from QP, whose only dollar-denominated deal was back in 2006. The bond would be just the third yen-denominated financial instrument known to be issued by a Gulf entity.
The benefits for regional borrowers from tapping into the Samurai market include diversification of funding, while low rates in Japan mean attractive costs if cash is kept in yen.
"While regional issuers have been able to tap liquidity in Asian local currencies including Malaysian ringgits, Singapore dollars and most recently Chinese renminbi, the Samurai market would be a new liquidity pool which they aren't able to target via their dollar benchmarks," said Salman Ansari, Standard Chartered's head of debt capital markets for the Middle East.
However, although QP's deal would be a notable transaction from a high-quality borrower, a major wave of Samurai issuance from the Middle East would remain doubtful.
"If the issuer feels the cost of funding and the exchange rate has moved in the right direction, then it makes sense, and rates in Japan are low right now," said Debashis Dey, partner at Clifford Chance in Dubai.
"But it is an opportunistic play, and demand really ebbs and flows. Samurais take time to set up as an issuer has to create a Samurai programme in Japan and that has cost implications too."
Rumours of a QP Samurai have been circulating for much of 2012 and finally crystallised last week as it emerged five banks had been mandated: Daiwa, Mitsubishi UFJ Financial Group, Mizuho Financial Group, Nomura and Sumitomo Mitsui Financial Group.
Initial price guidance of 27-37 basis points over the offered swap rate, given on Wednesday, was revised on the back of good interest to 30-35 bps over the same benchmark on Thursday, according to IFR, a Thomson Reuters publication.
The deal's JBIC guarantee raised eyebrows as backing from such an institution is normally used to reduce the cost of funds for much lower-rated credits. Standard & Poor's rates QP at AA and JBIC at AA-, a notch lower.
"You don't normally need a wrap for such a highly rated credit - it's not like Emirates NBD, who got the benefit of much tighter pricing," said one Gulf-based debt banker.
In 2010, Emirates NBD completed a 19 billion yen ($243 million) securitisation, backed by loans on Japanese cars, which helped the Dubai bank raise much cheaper finance than it would have achieved in international markets at a time when Dubai World's debt was still being restructured.
For JBIC, the rationale for that deal was that it would help support car sales in the United Arab Emirates, where Japanese models had a roughly 60 percent market share.
For QP's deal, the guarantee simply aims to make Japanese investors comfortable with a credit that is new to them.
"Japanese investors are receptive to long-dated exposures and the JBIC guarantee will help ease investments in the region past their local credit committees, who may be unfamiliar with Gulf Cooperation Council (GCC) names," said Doug Bitcon, head of fixed income funds and portfolios at Rasmala Investment Bank.
The only previous Samurai bond from the Gulf was from National Bank of Abu Dhabi, which privately placed a 10 billion yen, 15-year deal in July 2011.
One factor likely to attract yen investors to QP is the way in which the company represents the Gulf's role in supplying energy to the Japanese economy, in particular after last year's nuclear disaster at Fukushima.
Japan has been buying about 70 percent of Qatar's oil exports and around 13 percent of its liquefied natural gas output since March, according to a researcher at the Japanese Institute of Middle Eastern Economies, cited by IFR.
"The relationship used to be more about manufacturing but the energy demand will be more acute and that will invigorate the relationship between Japan and the Middle East," said Dey.
It's not only through energy imports that Japan and Gulf states are forging closer ties; Japanese firms have long been big players in GCC infrastructure projects. Sumitomo Chemical and Saudi Aramco gave the go-ahead in May for their $7 billion Rabigh 2 joint venture.
Nevertheless, Samurai issuance is likely to be piecemeal and restricted to a limited number of GCC names.
The most significant constraint is the lengthy process which borrowers have to undergo, which is said to be much longer than to tap dollar markets. - Reuters