SMFG happy with size, price on €1.25bn 10s

Sumitomo Mitsui Financial Group (SMFG) was able to achieve an attractive size and price when it issued a €1.25bn 10 year senior HoldCo benchmark on 15 October, raising funding some 20bp inside what was available in US dollars thanks in part to the ECB-fuelled strength of the euro market.


According to Shoma Aosaki in SMFG’s debt issuance team, the issuer targets euro issuance at least once a year to help diversify its investor base and TLAC funding sources.

“And thanks to the further ECB quantitative easing announced in September, the euro investment grade market became very strong,” he said, “and there was a chance to issue at a cheaper funding cost compared to our US dollar curve.

“We therefore decided to go ahead with the euro TLAC issue.”

On the morning of 15 October, SMFG’s leads went out with initial price thoughts of the 85bp over mid-swaps area for the 10 year euro benchmark, rated A1/A-. After around two hours and 20 minutes, the leads reported books above €1.1bn, and after around three hours and 50 minutes guidance was set at 65bp-70bp, will price in range, on the back of over €1.8bn of orders. The spread was then set at mid-swaps plus 65bp and the deal was ultimately sized at €1.25bn on the back of €1.7bn of demand good at re-offer, pre-reconciliation.

“We were greatly satisfied with both pricing and deal size,” said Aosaki. “According to our calculations, mid-swaps plus 65bp for the 10 year was 20bp tighter than our US dollar curve! This is the cheapest funding we have achieved compared to our USD curve.

“Before we announced this transaction, our target was a benchmark size (€500m-€750m), but thanks to the very strong demand, we were able to up size the issuance size, as well as achieving the cheaper funding cost.”

The deal is the second largest euro TLAC bond from a Japanese issuer, behind a €1.5bn issue SMFG launched in 2016.

“We expected to see strong demand from European investors,” added Aosaki, “especially insurance type investors hunting for yield in such a low interest rate environment, and we preferred the longer tenor to the shorter tenor. In addition, from our ALM point of view, over 10 years was not suitable.

“Thus, considering both investor demand and our ALM strategy, we made the decision to issue the 10 year bond, which was a well-balanced option for us.”

The Japanese implementation of the Basel Committee on Banking Supervision TLAC Holdings Standard came into force at the end of March, making it difficult for Japanese regional banks to invest in TLAC bonds and lessening one potential source of funding for Japan’s G-SIBs.

Aosaki said that to prepare for this, SMFG continued to expand its investor base and funding tools.

“Thanks to these efforts,” he added, “there has been no need to change our issuance strategy, even after the new regulation applied in Japan.”