Mar 30, 2023
Samurai Bonds Lure East Europe as Core Markets Get Pricer
(Bloomberg) -- Samurai bonds are making a return to East European issuance agendas as governments seek to diversify their sources of financing at a time of rising costs of euro and dollar debt sales.
Poland plots a return to the Japanese market this year after a decade away, while Romania and Slovenia flagged plans for debut issuance of Samurai bonds — a term used for yen-denominated debt from a non-Japanese issuer. Hungary sold bonds in the Japanese market in 2022.
With local-currency borrowing costs surging, governments are looking to fund more debt on foreign markets. Rate increases in the euro area and the US have made yen bond sales relatively more affordable for foreign issuers, who also get a chance to tap yield-hungry Japanese investors.
“European issuers find the cost of selling yen bonds about the same as in the dollar or the euro,” said Tokyo-based Kenichiro Nakahama, head of international debt syndication at SMBC Nikko Securities Inc. “And if borrowing costs are about the same, they want to diversify their investor base.”
Foreign issuance started to play a bigger role in Polish and Romanian financing strategies when the two countries’ central banks started hiking interest rates in 2021 to tame runaway inflation. Slovenia is a euro area member and funds itself almost exclusively in the common currency.
Higher borrowing costs come at a time when bond supply from the European Union’s eastern flank is also on the rise, with governments spending more on food and energy subsidies to soften the impact of higher prices. On top of that, the region are also investing heavily on defence in the wake of Russia’s invasion of Ukraine a year ago.
Poland may consider issuing a yen-denominated bond in the second half of 2023, depending on market conditions, said Karol Czarnecki, head of the public debt department at Poland’s Finance Ministry.
“Issuing in yen allows us to diversify our investor base” at a comparable cost to sales on the European market, he said by phone. “The Japanese market is also important for us because we have investors there who hold zloty bonds.”
Issuers Lining Up
Eastern Europe isn’t alone in noticing the potential of Japan’s bond market. South American development bank Fondo Financiero para el Desarrollo de la Cuenca del Plata, Renault SA and BPCE SA sold Samurai bonds in recent months.
Samurai bond issuance reached 1.1 trillion yen ($8.3 billion) in the 12 months ending in March, up 41% from a year earlier, according to data compiled by Bloomberg.
Polish bonds are “particularly attractive” among the east Europeans, according to Shinpei Hirose, a fund manager at Japan Post Insurance Co., which holds zloty-denominated government debt and is interested in the sovereign’s Samurai bond offering.
“As long as the timing is right and deals offer attractive returns, we would like to buy them,” Hirose said.
--With assistance from Jan Bratanic and Irina Vilcu.
©2023 Bloomberg L.P.