Latin Finance - March/April 2010 - 35

samurai bonds Yen Market Unlocks by Ben Miller apped often in the 1990s, the Japanese investor base shied away from Latin American risk after being burned by the Argentine default of late 2001. After another more global credit crisis, which reminded investors that the developed markets are also risky and directed attention to stronger EM borrowers, the Samurai market may be ripe for the plucking. After years of almost no activity from the region, two of its more reputable borrowers, Mexico and Colombia, locked up sizeable funds in late 2009. Both took advantage of 95% guarantees from the Japan Bank for International Cooperation (JBIC), under a program the multilateral developed to assist EM borrowers. “We want to reestablish our presence in the Japanese market,” says Gerardo Rodríguez, Mexico’s deputy undersecretary for public credit, after placing one of the largest non-dollar EM bonds last year, at nearly $1.7 billion equivalent. “We are looking forward to consolidation of more benign conditions that would allow us to issue in the yen market on a non-guaranteed basis.” Mexico hit the Samurai market 12 times between 1993 and 2000, according to Dealogic data, for more than $6 billion equivalent. Colombia held six sales between 1986 and 2001, to raise almost $1 billion. JBIC guarantees were fairly standard during the period. Among other large sovereigns, Argentina raised $5.86 billion through 18 transactions between 1994 and 2000, while Brazil sold $4.57 billion in six deals between 1995 and 2001, according to Dealogic. T Sovereigns have returned to Japan for diversiﬁcation at an attractive rate. Corporates are another matter and the scope of the Samurai market remains to be seen. Baa1/BBB on a standalone basis, and Colombia Ba1/BBB-. Rodríguez stresses that it was essential to hit the yen market for not just compelling pricing, but also for size and tenor. “We wanted to get as much as we could on a single transaction,” says the o cial. Pricing was cheaper than the dollar curve on a swap equivalent basis, he explains. Rodríguez adds that the cost of the guarantee brings pricing about equal to what it would have paid on a dollar bond. Bankers on both sales decline to comment on the cost of the guarantee, and JBIC also refuses to disclose. Mitsubishi UFJ Securities and Daiwa Securities SMBC managed the Colombia transaction, and Daiwa and Nomura managed the Mexico sale. The private placement went to “more than a handful” of Japanese institutional investors, says Rodríguez, including insurance companies, banks and mutual funds. The issuer and its bankers claim the sale was signiﬁcantly oversubscribed. “The fact that we were able to increase the deal size [from an estimated ¥100 billion] in Mexico was very encouraging,” says Takeo Sumino, chief operating o cer at Nomura Holding America. “The names I saw in the book were more widely distributed than I had imagined.” Brazil a prime Samurai candidate, says Sumino from multilateral CAF in February 2009 and a ¥30 billion deal from Uruguay in 2007 – had long gone untapped by LatAm since the 2001-2002 credit crisis. The sheer volume of the two prompts questions about a broader return. Mexico priced in December ¥150 billion in 2019 bonds at par with a 2.22% coupon to yield yen Libor plus 80 basis points. Colombia came two weeks earlier, raising ¥45 billion ($503 million) from a 2019 at par with a 2.42% coupon, or 93 basis points over yen swaps. Both were privately placed with groups of Japanese investors. The JBIC guarantees, negotiated after each government had contacted the multilateral in early 2009, boosted both ratings to JBIC’s AA level. Mexico is rated Cheaper Than Dollars Supply Constraints The Mexico and Colombia transactions represent more than $2 billion in a market that – other than a ¥10 billion Rodríguez expects a few more emerging market and LatAm issuers to make use of JBIC support to issue in the Samurai market, eventually followed by March/April 2010 LATINFINANCE 35

Latin Finance - March/April 2010

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