SMFG euro HoldCo debut impresses

Sumitomo Mitsui Financial Group (SMFG) launched the first HoldCo transaction in euros from a Japanese G-SIB on 7 June and attracted Eu2.75bn of demand to its Eu1.5bn 10 year deal at a level deemed attractive for the issuer.

Atsushi Ouchiyama, senior vice president, investor relations department, SMFG (pictured), said that — having previously sold HoldCo debt in US dollars — the issuer targeted the euro market as one of the deepest and broadest bond markets in the world.

“In order to comply with TLAC regulation, having access to the euro market is very important in terms of diversifying the investor base for SMFG,” he said. “The transaction strengthened SMFG/SMBC’s liquidity profile and TLAC requirements, further diversifying SMFG/SMBC’s funding sources with a maturity profile in line with overseas loan growth.”

The deal was the latest in a series of successful moves into the TLAC/MREL-eligible liability space, and Ouchiyama said that these had been encouraging.

“To be honest with you, we did not see the KBC and Nykredit transactions as having direct impact on our transaction because KBC, Nykredit and SMFG are in different jurisdictions and each issuer targeted a different tenor,” he said. “However, the strong demand for those transactions and strong secondary performance were a very positive sign for us to decide to jump into this market.”

Leads Goldman Sachs, SMBC Nikko, Barclays, BNP Paribas, Deutsche Bank and HSBC went out with initial price thoughts of the mid-swaps plus 110bp area and priced the Eu1.5bn 10 year deal at 105bp over on the back of Eu2.75bn of demand. A banker away from the leads put the new issue premium at “only” 10p and market participants were impressed at the level paid by the Japanese name.

“We understand some market participants expected wider HoldCo-OpCo spreads in euros for our transaction by comparing with European banks’ HoldCo-OpCo spreads,” said Ouchiyama. “The tight HoldCo-OpCo spread shows investors’ comfort with the strong TLAC framework in Japan.”

He said that the distribution — 64% to Europe and 36% to Asia — was similar to past OpCo issuance, but with slightly more demand from Japan, reflecting the negative yield environment there.

“The success of the transaction is a testament to the Japanese name,” added Ouchiyama. “We believe the transaction offers a benchmark for future Japanese issuance.

“SMFG/SMBC would like to solidify frequent issuer status in the euro market going forward to broaden its investor base further.”