Australia Inc is adding Japan as a destination when marketing syndicated loans, in addition to regional hubs such as Singapore and Taiwan that have traditionally provided retail liquidity.
Japan's mega-banks have long been lenders to Australian companies, but smaller institutions are now showing interest too, with a horde of borrowers heading to Japan to court lenders.
“When syndication houses roadshow clients, they are now targeting Tokyo,” said Scott Austin, head of loan capital markets at Sumitomo Mitsui Banking Corp. “Historically there has been less focus on Japanese investors. It almost feels like Tokyo is replacing Hong Kong as a roadshow destination.”
Macquarie Group launched a US$300m loan in the Japanese market earlier this month with a lender presentation scheduled in Tokyo on October 18. Woodside Energy Group held a non-deal roadshow in Singapore, Taipei and Tokyo in late September following one-on-one meetings Port of Brisbane hosted in the Japanese capital in late August. Coal rail network operator Aurizon Network is in the market with a A$200m (US$126m) cash advance facility after hosting a roadshow in all three cities in late August and early September.
The borrowers are among a dozen firms representing a range of sectors from Down Under tapping liquidity in Asia, with several calling on Japanese lenders initially through non-deal roadshows held in Tokyo in recent months.
“The non-deal roadshow strategy is more about giving investors that take longer to get credit approvals more time to understand new borrowers without putting them under the time pressure of a transaction,” said Gavin Chappell, head of loan syndications at ANZ. “Rather than having an elongated timeframe around a deal, a non-deal roadshow gives investors more time to understand different borrowers than they might have otherwise previously looked at and that increases your chance of a success when you ultimately bring a deal to market.”
Most of the Australian firms to tap Asian liquidity have been investment grade, regulated utilities and infrastructure companies, to which institutions like Japanese insurers have been willing to provide long-dated loans. But there are signs a bigger pool of liquidity is opening to a broader range of borrowers, helped by growing interest from yield-hungry Japanese regional banks.
Earlier this month Qantas Airways held a non-deal roadshow in Singapore, Sydney and Taipei. Last month, Australian private hospital operator Ramsay Health Care launched an amendment and extension of its A$1.5bn sustainability-linked loan from 2021, while infrastructure and engineering company Downer EDI is seeking a similar exercise for a A$1.4bn SLL originally signed in December 2020. The former held a non-deal roadshow in Singapore, Taipei and Tokyo in early September, while the latter did the same in the first two Asian cities.
Attractive proposition
Japanese lenders are attracted to Aussie credits as the country is one of the few sovereigns globally with Triple A ratings. Most of the Aussie borrowers eyeing Asian liquidity are rated Triple B or higher.
“As we increase offshore lending, we cannot expand Triple B rated countries such as India and Indonesia, so instead we are considering wider industries other than infrastructure in Australia, which is a Triple A rated developed country,” said a banker at a Japanese regional bank. “Pricing is also attractive compared to domestic loans [in Japan].”
Seven-year loans for BBB rated Japanese borrower typically pay around 20bp over Tibor, so even after adding cross-currency swap costs, Aussie deals could offer as much as 50bp more compared to Japanese domestic loans, according to the banker.
“Whether it is an Asia term loan or Samurai loan strategy, investor demand is underpinned by strong and stable Australia economic fundamentals, high quality and detailed information that is provided as an Australian market standard, and attractive loan pricing,” said Sydney-based Austin. “The regional Japanese bank market has a broadening appetite for Aussie credit. It used to be just regulated utilities and infrastructure, but now we are seeing a move into general corporates too.”
The most recent example is construction and engineering company CIMIC Group, which more than doubled its loan last month to A$2.25bn-equivalent from A$950m at launch, after attracting 40 lenders in syndication, in what is its most widely distributed loan, according to LPC data.
Nine of the 11 Japanese lenders joining are first-time lenders to CIMIC. They are Bank of Yokohama, Chiba Bank, Dai-ichi Life Insurance, Gunma Bank, Hachijuni Bank, Joyo Bank, San-in Godo Bank, Shiga Bank, and Sumitomo Mitsui Trust Bank.
CIMIC Finance, rated Baa3/BBB− (Moody’s/S&P), offered opening interest margins of 170bp and 190bp for the three and five-year tenors, respectively, 20bp wider than its borrowing in December for the same maturities.
Macquarie Group, rated A2/BBB+/A (Moody's/S&P/Fitch), is offering 125bp margin for its latest US$300m five-year loan, compared with 120bp over Libor for its borrowing of the same size in April 2020.
Ramsay, rated BBB− (Fitch), is offering an opening margin of 185bp over BBSY for its A$300m six-year term loan. The margins for the five, six, and seven-year portions on a A$200m loan for Aurizon Network, rated Baa1/BBB+ (Moody’s/S&P), are 165bp, 175bp and 185bp over BBSY respectively.
Energy infrastructure company APA Group, rated Baa2/BBB (Moody’s/S&P), is offering 170bp and 195bp over BBSY margins for the seven and 10-year tranches, compared with 115bp and 135bp for the five and seven-year tenors for a loan raised in June 2022.
Broadcast Australia Finance, the financing arm of broadcast network operator BAI Communications, rated Baa2 (Moody’s), is also tapping Asian liquidity for a A$150m-equivalent loan. The margins are 185bp and 215bp over BBSY for the seven and 10-year Aussie tranches, and 165bp and 190bp over term SOFR for the US dollar portions in the two maturities.
“Japanese regional banks have little exposure to Australia so far, so they would be interested in deals like this,” said a second banker at a Japanese regional bank.
Other borrowers from Australasia that have attracted Japanese lenders in recent months are Powerco, rated BBB (S&P), and transmission network service provider ElectraNet, rated Baa2 (Moody’s). Daido Life Insurance, Hachijuni Bank, Hyakugo Bank, Meiji Yasuda Life Insurance, Norinchukin Bank and SMTB were the Japanese lenders joining either or both of those financings.
“Bringing foreign borrowers to the Japanese loan market has become increasingly popular due to the availability of longer-dated term loans," said Austin. "We are going to see more of these strategies in the future.”