Japan banks expect strong demand for ‘Samurai’ bonds

Five of Japanese financial institutions have given their full backing to the Philippines’ first stand-alone "Samurai" bonds issue set in the third quarter of the year, the Department of Finance (DOF) said.

In separate meetings with Finance Secretary Carlos G. Dominguez III, top officials of Mitsubishi UFJ Financial Group, Nomura Holdings Inc., Mizuho Bank Ltd., Sumitomo Mitsui Banking Corp. (SMBC), and Daiwa Securities Group, Inc. gave their support to the yen-dominated notes.

According to Dominguez, the five financial intuitions also expect strong demand for the Philippines’ "Samurai" bond float, the first since the last one issued in 2010.

The "Samurai" bond issue planned for either September or October this year is also the first one to be issued by the Philippine government without any guarantee from a Japanese institution.

In 2010, when the government raised funds through the float of "Samurai" bonds, the Japan Bank for International Cooperation (JBIC) guaranteed the bond issue through its Market Access Support Facility. Since 1978, the Philippines through private banks floated bonds in the Japanese market with seven Samurai bond issues.

The eighth in 2010 was issued by the Philippine government with JBIC support.

The ninth bond issuance set this year with no guarantee fees involved would mean lower financial costs for the Philippine government.

In their meeting with Dominguez, officials of MUFG led by its president and chief executive Saburo Araki said there is “strong confidence in the Philippines now and into the future” among Japanese investors.

“We are extremely supportive of the bond issue… We are very excited and pleased for the inauguration or possible issuance,” Araki said.

Araki also cited the good relationship between Japan Prime Minister Shinzo Abe and President Duterte as a positive factor in winning investors for the "Samurai" bond issue.

MUFG, which is among the leading institutions when it comes to project financing, would also like to get involved in the Philippines’ “Build, Build, Build’ program, Araki said, as he believes that “infrastructure development is a key for the future success of the Philippines.”

Dominguez said the Philippines would like to maintain the tight spreads for its offshore bond issuances, pointing out that when the government issued $2 billion worth of 10-year dollar denominated bonds in January, its spread was 37.8 basis points (bps) over the US Treasuries.

The maiden "Panda" bond float of 1.46 billion renminbi in China last March, meanwhile, had an even tighter spread of only 35 bps over the benchmark.

He also informed Japanese bank officials that the Duterte administration made sure that the government was on solid financial footing before embarking on a massive infrastructure buildup by first raising revenues through its tax reform program and running after tax evaders.

"We are now confident that our infrastructure program has enough capital for it. We are not going to be relying solely on debt to finance it,” Dominguez said.

Nomura Holdings, led by its president Koji Nagai, told Dominguez that the bank has an exemplary track record in selling "Samurai" bonds and would strive to maximize the Philippines’ issue and "capture the most favorable conditions.”

Tatsufumi Sakai, the Group CEO of Mizuho, cited the Philippines’ recent investment-level ratings upgrades, its strong economy and young skilled workforce as plus factors for the "Samurai" bond issuance and the continued interest of Japanese investors in the country.

“Not only the government, but also the private sector wants to invest in your country… By collaborating government and private sector partnership we can do a lot,” Nagai said.

Daiwa Chief Executive Seiji Nakata assured Dominguez, meanwhile, of the institution’s support for the "Samurai" bond issue. “We are right behind you, so no need to worry,” Nakata said during his meeting with the finance chief.