October 5, 2018 / 9:01 AM / 11 days ago

Ninja loans climb to 10-year high

TOKYO (LPC) - International companies are raising low-cost, long-term Ninja loans in Japan to take advantage of attractive cross-currency swaps and domestic banks’ appetite for high-yielding loans.

Ninja loans – deals syndicated in Japan for overseas borrowers – reached a decade high in the third quarter as commodities trading companies raised funds and Indian and Indonesian borrowers looked to extend maturities and cut pricing.

Volume reached US$2.58bn with eight deals – more than double the US$1.20bn recorded at the same time last year, and the highest quarterly figure since the third quarter of 2008, according to LPC data.

Ninja loans can be denominated in any currency and include Samurai loans, which are distributed in Japan and denominated only in yen.

“The market is booming now and we expect more deals by the end of the year,” said Shoji Kinugasa, director of MUFG’s global syndication department.

Japanese regional banks are keen to lend to international companies in return for higher yields as, despite low funding costs, the country’s banking sector is finding few profitable lending opportunities in an ultra-low interest rate environment.

The three-month dollar-yen cross-currency swap is also driving the resurgence in popularity. The rate has stabilized at minus 10bp–25bp in the third quarter, tighter than the minus 30bp–40bp level seen a year earlier. A more negative figure means a high after-swap cost for borrowers transferring the proceeds to US dollars.

“Yen-denominated loans dominated the market due to the recent stable basis swap rates,” said Tetsu Sakurai, joint general manager of the cross-border team in Mizuho Bank’s syndicated finance department.

“Three and five-year deals will continue to be popular. Due to the flat yield curve, seven and 10-year deals seem particularly attractive for borrowers in terms of relatively lower costs compared to dollar deals where the yield curve is steeper,” he added.

COMMODITIES BACK

Commodities trading companies have returned to the Samurai market to raise funds.

In August, energy and commodities trader Vitol completed a ¥60.8bn (US$542m) three-year loan, while agribusiness group Olam International raised a ¥30bn loan in September with three and five-year tranches.

“Commodity traders have active funding needs. Lenders find it easier now to assess credit and extend loans thanks to stabilized resource prices,” said Takashi Nishikawa, joint general manager of Sumitomo Mitsui Banking Corp’s distribution department.

Indian public-sector companies have also been active. Indian Railway Finance Corp raised a US$250m-equivalent 10-year Samurai loan in July, following the success of NTPC’s ¥39.42bn 10-year Samurai loan in April.

“We couldn’t imagine an Indian name with a tenor of over 10 years a few years ago, but such deals are now being put on the table and some have been closed successfully,” said SMBC’s Nishikawa.

Indian companies’appetite for Samurai loans is expected to continue as Indian banks face relatively high funding costs which make domestic long-term loans more expensive.

This borrowing spree has already taken several Japanese regional banks close to their country limits, but more Indian borrowers are eyeing the Japanese markets.

State-owned utility Power Grid Corp of India is currently sounding the market for a yen loan to raise US$200m-equivalent at a 12-year tenor.

CHINA NEXT?

Japan’s big three banks – Mizuho Bank, MUFG and Sumitomo Mitsui Banking Corp – are also eyeing China as a potential market for yen-denominated Samurai loans, despite the two countries’ difficult historical relationship.

Bank of Communications Financial Leasing is set to become the first Chinese leasing company to tap the Samurai market with a US$200m-equivalent deal. Huawei Technologies is also seeking a Samurai loan of a similar size.

“A (Japanese) regional bank historically and psychologically felt resistant to Chinese and Korean names, but this is gradually changing. There are more Chinese names which offer relatively attractive pricing for ratings,” said Mizuho’s Sakurai.

More international companies are expected to tap the Japanese market in the fourth quarter, which could push Ninja loan volume to an annual record, bankers said.

“Growth will continue next year unless anything big happens that impacts global fundamentals,” MUFG’s Kinugasa said.

Reporting By Wakako Sato; Editing by Tessa Walsh and Luis Morais

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