Sumitomo Mitsui Financial Group (SMFG) (8316.T) priced $1.04 billion of additional tier-1 (AT1) debt on Wednesday, becoming the first big Japanese bank to sell them after Credit Suisse’s (CSGN.S) bonds lost value.
SMFG priced the bonds in two tranches: 89 billion yen ($662.50 million) five-year notes and 51 billion yen 10-year bonds. Market players liked the conditions.
“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 Pictet Japan senior fellow Nana Otsuki.
“SFMG had a choice of not selling them, but they went ahead, likely signalling that the Japanese financial system may be more stable than those in other countries.”
After UBS (UBSG.S) rescued Credit Suisse, investors feared AT1 bonds. FINMA’s decision to cancel Credit Suisse’s AT1 bonds shook global credit markets.
Mitsubishi UFJ Financial Group Inc. (8306.T) said it would delay AT1 debt issuance until mid-May due to weak investor demand and market conditions.
“Contingent convertibles” or “CoCo” AT1 bonds can be converted into equity or wiped off if a bank’s capital falls below a specified threshold.
Pictet’s Otsuki said SMFG’s new issuance is similar to Japanese banks’ AT1 bonds, which are structured to retain value even if the government restructures.
A regulatory filing stated that the 89 billion yen offering would have a 1.879% coupon rate for five years and two months. Fifty-one billion yen yield 2.180% for ten years and two months.
