UPDATE 1-ANZ Samurai bond sale biggest ever by Australian firm

By Rika Otsuka

TOKYO, March 5 (Reuters) - Australia & New Zealand Banking Group Ltd (ANZ.AX) sold 135.8 billion yen ($1.3 billion) of Samurai bonds on Wednesday, the largest ever from an Australian issuer.

Samurai bond issuance has hit a record high in the business year ending in March as Japanese investors are hungry for the higher yields the paper offers and have been willing to fund foreign financial firms that have trouble securing funds elsewhere due to the global credit crunch.

About 2.6 trillion yen in Samurais -- yen bonds issued by overseas entities in Japan -- have been sold in the current business year.

Samurais have flourished since the credit crunch hit last August because Japan has not been hit so hard by the market troubles sparked by defaults on U.S. subprime mortgages, although Japanese fund managers have turned more selective about which names they will buy.

They have avoided financial firms saddled by huge debt write-downs but have been eager to buy paper from institutions that have fared better, such as Australia's ANZ and National Australia Bank (NAB) (NAB.AX) or investment banks like Goldman Sachs (GS.N).

NAB issued 90 billion yen of Samurais last month, while Goldman sold 148.5 billion of Samurais in January.

The Samurai market has been a place where overseas firms can rely on raising big funds as Japanese investors favour the paper, which offers higher returns than domestic corporate and government bonds.

Yields on benchmark JGBs JP10YTN=JBTC have fallen back down near a 2-1/2-year low around 1.3 percent after peaking near 2 percent in the previous two years. The Nikkei share average .N225 is sliding towards a two-year low struck near 12,500 in January.

Even though many foreign companies can count on the Samurai market in funding, they have to pay more to do so.

Goldman's five-year floating-rate Samurai was sold at 110 basis points over yen money market rates compared with 19 basis points on a similar bond in December 2006.

ANZ, Australia's third-largest lender, sold on Wednesday its five-year floating-rate bonds with a coupon set at 95 basis points over yen money market rates. Wednesday's sale was ANZ's first-ever Samurai offer.

Analysts said Australian entities have to pay less issuing costs than U.S. firms now as the total amount of Samurai bonds by Australian companies is relatively small so investors have some room to expand their exposure to Aussie Samurais.

Historically, U.S. financial firms have been the dominant issuers in the Samurai market due to their name recognition in Japan and high credit ratings.

($1=103.33 Yen) (Additional reporting by Takefumi Ito and Naoyuki Katayama)