The Samurai loan market in Japan is set for a bumper crop this year, with volumes already rising to their highest level in over 15 years, and an expectation of more debut borrowers and a greater participation from Chinese lenders.
Foreign borrowers are increasingly tapping the Japanese currency, with a mix of borrowers making their debuts in the Samurai loan market and others returning to raise larger amounts than their previous forays. Most are raising yen-denominated loans to diversify their funding sources, even as interest rate hikes in Japan increase borrowing costs.
“I think there will continue to be a need to diversify funding sources, and we are conducting marketing from that point of view, so we may be able to bring new names to the market as early as the second half of the fiscal year [ending in March 2025],” said Ken Igarashi, managing director and the head of cross border team at Mizuho Bank’s syndicated finance department.
Last week, Swiss renewable energy producer Axpo made an impressive debut in the Samurai loan market with a ¥42bn (US$290m) three-year sustainability-linked loan to diversify its financing structure and to increase its financial flexibility.
Axpo’s three-year Samurai loan drew more than 20 Japanese banks and investors in syndication, following close on the heels of a ¥130.9bn three-year borrowing for Mercuria Asia Group Holdings that closed earlier this month to a strong response. Mercuria, which is a frequent borrower in the Samurai loan market, lifted the loan from an original target of ¥70bn. Among the participants were 13 first-time lenders to the company.
In March, Trafigura, another commodities trader and also a frequent borrower in the Samurai loan market, closed a ¥123.45bn SLL that attracted two dozen financial institutions in general syndication, including eight new lenders.
These financings have helped to take Samurai loan volumes to US$6.77bn so far this year, already exceeding the US$5.29bn raised in the whole of 2023, according to LSEG LPC data. This year’s tally is within touching distance of the US$7.28bn in Samurai loans raised in 2008, the all-time high for such financings in Japan.
Market participants expect the flow to remain strong as conditions are conducive. Five-year yen/US dollar basis swap costs have tightened to around minus 30bp, the lowest since January 2022, making the market favourable for offshore borrowers to raise funds in yen.
The Japanese currency soared against the US dollar to its highest point this year in mid-September, driven by the Bank of Japan’s interest rate hike at the end of July and the expectation of the September 18 rate cut by the US Federal Reserve.
Although the costs of borrowing are rising in Japan, they are nowhere near as high as in other markets elsewhere and still present a strong proposition for borrowers seeking to diversify their sources of funding.
“In order to deal with the uncertainty caused by changes in interest rates, currency fluctuations, and other situations, diversification of funding needs is increasing not only in the home country but also in distant markets such as Asia,” said Kentaro Hosoe, team leader of MUFG’s cross border corporate and product syndication team.
“I believe that the shift to a significantly stronger yen will have a positive impact on deal syndication in the future, meaning less yen amount to be raised for the same dollar amount,” he said.
Chinese banks step up
The liquidity pool for Samurai loans is also growing and broadening as Chinese banks in Japan become more active in yen-denominated lending amid sluggish dealflow at home.
“In general, Chinese banks have a high need to accumulate assets,“ said Mizuho’s Igarashi. “Since last year or so, I have had the impression that Chinese banks have been quite active, and I have seen quite a lot of banks wanting to participate in not only cross-border loans but also when there is a term loan for a top-tier domestic companies they would like to strengthen their relationship with.”
The Tokyo branches of Chinese banks such as Bank of China, Bank of Communications and China Construction Bank were among the lenders participating in Mercuria’s Samurai loan, while BOC and BoCom joined a ¥45bn green financing in February for Spanish renewable energy firm Acciona in February, which marked its debut in the Samurai market.
”In order to build relationships with investors, we are sometimes asked by borrowers to invite Chinese banks in syndication,” said Takayuki Ishiwatari, joint general manager of the debt finance department at Sumitomo Mitsui Banking Corp.
According to Ishiwatari, Chinese lenders can fill the gap arising from the caution of Japanese regional banks towards lending to borrowers from the real estate and financial institution sectors.
Chinese banks can provide larger tickets compared to Japanese regional banks and they can also take greater risks as long as matching pricing is offered, bankers said.
In the Samurai loan market for instance, Chinese banks are expected to be among the more prominent lenders to the ¥23bn borrowing for Ping An International Financial Leasing, the Hong Kong-based leasing unit of China’s Ping An Insurance.
Regional Japanese banks have typically shied away from lending to Chinese credits, which is evident from the outcomes of the Samurai loans for the latter.
PAIFL’s latest deal is its third Samurai loan since making its debut in September 2020 with a ¥15bn borrowing that attracted only two other lenders – the Tokyo branches of Agricultural Bank of China and BoCom. Fuyo General Lease and a Japanese regional bank joined the two Chinese lenders on a ¥17.5bn Samurai loan for PAIFL in December 2021.