The shock and awe from Morgan Stanley’s ¥150bn (US$1.5bn) Samurai bond is impossible to ignore. The deal deserves praise for its ballsy execution, and it set the tone for this year’s Samurai market, helping some of the world’s most prestigious banks access the market in large sizes for months to come.
Morgan Stanley stunned Samurai bankers when it announced a three-tranche deal in May following a non-deal roadshow the week before. The bank had not issued a Samurai since the collapse of Lehman Brothers, so its return was telling: this year was not going to be an ordinary one for the Samurai markets.
The deal was well timed – it came just as domestic bond investors were preparing to make their first foray into Samurais at the beginning of the Japanese fiscal year, after struggling through 2013 with ultra-low-yielding local bonds and JGBs that were the result of the Bank of Japan’s monetary easing programme.
Lead managers Mitsubishi UFJ Morgan Stanley and Morgan Stanley MUFG swooped in with initial guidance that was richer than those investors could dream of getting in the domestic bond markets, but still competitive for the issuer from a US dollar standpoint.
The deal, initially expected to be ¥100bn in size, included a four-year fixed-rate tranche, which was rare compared with the usual three, five and 10-year notes in Samurai format. That was in response to feedback from trust banks and asset managers (which wanted a three-year tranche), and life insurers (which preferred five-year notes).
Orders were so hot that Morgan Stanley was able to wrap up its official marketing period within two days, making for one of the fastest bookbuilding processes for a Samurai deal in 2014. It also demonstrated that Samurais could be executed in a manner more in line with their international peers, rather than having to wait the customary one week to price.
“This execution strategy essentially eliminated the external market risk that investors often fear,” said Noriaki Nomura, head of international syndication at Mitsubishi UFJ Morgan Stanley Securities. “Our new strategy proved to be so effective that this deal served as a prime example of effective execution of large Samurai deals.”
The deal had amassed more than ¥200bn in orders, one of the highest subscription rates seen in 2014.
The ¥122.5bn four-year fixed, ¥8.7bn 10-year fixed and ¥18.8bn four-year floater were all priced at the tight end of guidance at 25bp over yen offer-side swaps, 40bp over swaps and 32bp over three-month yen Libor, respectively.
Deals from the likes of Nordea and Renault, which were priced immediately after Morgan Stanley, were able to benefit from the momentum from the US bank’s deal by selling their largest deals to-date. The deal also recognised healthy investor appetite for Samurais from financial issuers, setting the trend for Societe Generale, Barclays and HSBC to follow.
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