A woman walks past a sign board of Sumitomo Mitsui Banking Corp, part of Sumitomo Mitsui Financial Group Inc (SMFG) outside its branch in Tokyo, Japan. REUTERS/Toru Hanai/File photo
TOKYO – Sumitomo Mitsui Financial Group (SMFG) priced $1.04 billion of additional tier-1 (AT1) debt on Wednesday, becoming the first major Japanese bank to sell them since the value of similar bonds issued by Credit Suisse was wiped out.
SMFG priced the bonds in two tranches, in 89 billion yen ($662.50 million) five-year notes, and 51 billion yen 10-year bonds, whose terms market players said were attractive.
“In Japan, where spreads over corporate bonds are thin, the terms for these AT1 bonds were reasonably good, provided that the banking sector is credible,” said Nana Otsuki, senior fellow at Pictet Japan.
“SFMG had a choice of not selling them but they went ahead, likely signaling that the Japanese financial system may be more stable than those in other countries.”
Investors had grave doubts about AT1 bonds amid the market turmoil caused by the government-led rescue of Credit Suisse by rival UBS. Swiss regulator FINMA determined that Credit Suisse’s AT1 bonds would be wiped out, a decision that rocked global credit markets.
Domestic peer Mitsubishi UFJ Financial Group Inc said earlier this month it would put AT1 debt issuance on hold until mid-May at the earliest, pointing to weak investor demand and market conditions.
AT1 bonds – known as “contingent convertibles” or “CoCo” bonds – can be converted into equity or written off if a bank’s capital level falls below a certain threshold.
Japanese banks’ AT1 bonds had been schemed in a way the value is secured even if the government is involved in restructuring, and SMFG’s new issues are seen to have the same scheme, said Pictet’s Otsuki.
The 89 billion yen issuance would carry a coupon rate of 1.879 percent for the initial five years and two-month period, a regulatory filing showed. The 51 billion yen one would yield 2.180 percent for the first 10 years and two months.
($1 = 134.3400 yen)
https://business.inquirer.net/392015/credit-suisse-says-17b-of-its-debt-now-worthless-angering-bondholders