Mizuho Financial Group Inc. raised 261 billion yen ($1.9 billion) by selling Additional Tier 1 bonds, becoming the third Japanese megabank to issue such notes this year after the collapse of Credit Suisse set off a global fire sale.
The two-part sale to institutional investors came with coupons of 1.785% and 2.143%, according to the lead underwriter Mizuho Securities Co.
The lender joined Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. in issuing AT1 bonds this year, while the market in Europe is only just reopening, with many major banks there yet to resume issuance of these securities.
“Demand recovered on the back of investors having a better understanding of the Japanese structure,” said Masahiro Koide, joint head of the products business division at Mizuho Securities. “As for overseas markets, prices have collapsed and the recovery is probably going to be slow in Europe.”
Demand from institutional investors, including life and casualty insurers, and regional banks, was almost equal times as the amount it offered, according to the underwriter.
The risk of investing in Japanese AT1s is seen as lower than such bonds in other jurisdictions, where they can often be converted into equity or have the principal reduced if the issuer’s capital adequacy ratio falls below a certain level.
In the case of Credit Suisse, there was a clause that made the bonds worthless in the event of extraordinary government support. This isn’t a feature of AT1s in Japan.
The average yield on the riskier bank bonds globally, including yen notes, is about 9.3%, down from a year-to-date high of 13.6% after the collapse of Credit Suisse, a Bloomberg index shows.
The latest AT1 sale by Mizuho had 160 billion yen of non-callable five-year and five-month bonds, and 101 billion yen of non-callable 10-year and five-month bonds, according to the underwriter.
Mizuho’s AT1 bonds became the biggest since July 2018 when the bank raised 350 billion yen in selling the bonds.
Further issuances expected to continue in Japan. Sumitomo Mitsui expected to issue AT1 bonds for the second time this year as early as September.
--With assistance from Finbarr Flynn.
(Adds details on demand and investors in fifth paragraph)
