October 21, 2008 / 9:29 AM / in 11 years

Iceland's Kaupthing misses coupon payment on Samurai

(For more stories on the financial crisis click [ID:nCRISIS])

TOKYO, Oct 21 (Reuters) - Iceland’s largest bank, Kaupthing KAUP.IC, has missed the coupon payment on a samurai bond, raising concerns that it may default.

If the bank defaults on the debt, it would be another blow to Japan’s corporate bond market.

The Samurai bond market had been one of a few funding sources open to overseas financial institutions since the global credit crisis has made it very difficult for them to raise money elsewhere in the past one year.

As of Tuesday, Kaupthing had not paid investors the coupon on its 50 billion yen ($491 million) Samurai bond issued in 2006, according to Sumitomo Mitsui Banking Corp, the fiscal agent for the samurai bond.

The payment was due on Monday, with a seven-day grace period. If Kaupthing, one of the banks the Icelandic government took under its wing earlier this month amid an economic crisis, fails to make the payment before the grace period runs out, the bank will default on the bond.

Japanese investors have already turn cautious about buying corporate bonds from overseas entities after collapsed U.S. investment bank Lehman Brothers defaulted on its Samurai bonds last month.

“Investors have become uptight about more Samurai defaults and that is unlikely to be solved so easily,” said a Samurai market source at a big Japanese brokerage. “We are afraid there would be no more Samurai issuance before the year ends.”

Samurai bonds are yen bonds issued in Japan by non-Japanese entities. (Reporting by Rika Otsuka; Editing by Hugh Lawson)

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