Sales of samurai bonds soar to quarterly record

Korean companies are raising record amounts of yen this quarter, taking advantage of the lowest yields in nine years as Japanese investors seek higher returns.

Led by Korea Development Bank (KDB), sales of so-called “samurai bonds” denominated in yen rose to 130 billion yen ($1.6 billion) in the second quarter from 30 billion yen in the previous three months, according to data compiled by Bloomberg. With two weeks left before the end of the current period, offerings have already surpassed the previous record of 120 billion yen in the last quarter of 2007, the data show.

Investors’ pursuit of a haven from Europe’s debt crisis pushed Japan’s government bond yields this month to the lowest since June 2003, dragging down interest rates on company notes.

“Investor worries over Europe’s woes are forcing them to buy yen-bonds of Korean [issuers],” Takayuki Atake, chief credit analyst at SMBC Nikko Securities, said in a telephone interview late last week. “Demand for Samurais is strong because of the low spreads offered by Japanese companies.”

State-owned KDB raised 30 billion yen in yen-denominated notes Thursday, according to data compiled by Bloomberg. Elsewhere in Japan’s credit markets, Resona Bank announced plans to sell 20 billion yen of 10-year subordinated bonds that have a coupon of 1.32 percent for the first five years, Nomura Holdings said in a statement Thursday

Export-Import Bank of Korea sold 100 billion yen of samurai bonds on May 17, a record for a Korean borrower in the market, according to data compiled by Bloomberg. The bank, known as Kexim, doubled the sale amount from 50 billion yen planned initially “because of high demand,” according to a statement from the lender at the time.

KDB is rated A with a “negative” outlook by Standard & Poor’s, while Kexim is graded A by S&P with a “stable” outlook, data compiled by Bloomberg show. KDB has the equivalent of $41 billion of bonds outstanding, including $8.8 billion due this year, the data show.

“Our financing needs are not very significant,” Lee Hoguk, a team head with international banking department at KDB, said by telephone.

Sales of samurai bonds by Koreans more than doubled last year to 377 billion yen and have risen 52 percent so far this year to 160 billion. That compares with a 7.9 percent drop in samurais issued by western European borrowers in 2011 and a 30 percent decline so far this year to 473 billion yen, the data show.

Samurai notes have returned 2.4 percent this year, Bank of America Merrill Lynch bond index shows. That compares with a 1.2 percent gain for Japanese corporate bonds and the nation’s government debt, while company notes worldwide advanced 4.4 percent, according to the indexes.

“Korea is an export-driven economy and as such is vulnerable to a slowdown in growth of developed nations,” Katsuyuki Tokushima, chief fixed-income analyst at NLI Research Institute, a unit of Nippon Life Insurance, said. “These bonds can be considered a good investment if the crisis in Europe is successfully resolved, but the debt crunch is not showing signs of easing any time soon.”

Bloomberg