Sumitomo Mitsui Financial Group Inc. is on track to be the biggest manager of yen-bond sales for the first time, suggesting its 2009 acquisition of Citigroup Inc.’s operations in the business is bearing fruit.
Japan’s second-largest bank managed ¥963.5 billion ($7.7 billion) in local currency-denominated debt sales this year, giving it a 19 percent share, data compiled by Bloomberg show.
Morgan Stanley, which operates two joint ventures with Mitsubishi UFJ Financial Group Inc. in Japan, ranked No. 2 for nongovernment issuance, down from No. 1 in the first half of 2014.
Sumitomo Mitsui is climbing the rankings as domestic investors look for higher-yielding debt offerings in other currencies and local bond sales dwindle. Nomura Holdings Inc. is facing tougher competition from the nation’s biggest banks, which can leverage lending relationships to capture more bond deals amid record-low returns on loans.
“Step by step, we are increasing our share of underwriting deals” and getting the lead role in mandates, Shunshi Kira, the head of the capital markets at SMBC Nikko Securities Inc., a Sumitomo Mitsui unit, said by e-mail.
“In what is not an easy environment for issuing bonds, we won’t settle for the current status quo.”
Corporate bond sales have slowed to the lowest since at least 1999, dropping 24 percent to ¥2.81 trillion from the year-earlier period, data compiled by Bloomberg show. Samurai offerings are down 53 percent to ¥597 billion.
Higher spending by companies that helped the economy grow at an annualized 3.9 percent pace in the first quarter won’t necessarily translate into more deals, said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo.
“Banks are very happy to provide credit to anybody on the ground in Japan for really anything,” Schulz said in an interview on Monday. “Everything is bought by the Bank of Japan so the market is dry, which makes it short-term already very sensitive to anything that can happen. And you don’t want to get in between that as a company if you don’t have to.”
SMBC Nikko’s Kira said in March that amid intensifying competition, the brokerage is focusing on bringing new issuers to the market and winning more bond deals from borrowers that count Sumitomo Mitsui as their main bank. The lender dissolved a 10-year-old investment banking joint venture with Daiwa Securities Group Inc. in 2009 to go it alone after buying Citigroup’s Japanese debt underwriting operations in Japan.
Sumitomo Mitsui’s private banking unit agreed in December to acquire Citigroup’s Japanese consumer banking business with about 740,000 customers and 32 branches, according to a release.
SMBC Nikko was the biggest underwriter of Sawai Pharmaceutical Co.’s first ¥10 billion public bond on June 5 and also co-underwrote Standard Chartered PLC’s debut Samurai note sale in May.
The average yield premium on Japanese corporate bonds was 23 basis points on June 8, up three from a seven-year low in August last year, Bank of America Merrill Lynch data show.
While it’s difficult to see company debt spreads spiking amid BOJ buying, there’s also little room for them to tighten, according to Kenji Sakaguchi, the chief investment officer in Tokyo at Prudential Investment Management Japan Co., which managed the equivalent of $133 billion at the end of March.
“It would be quite difficult to add” to Prudential’s existing Japanese corporate bond holdings, Sakaguchi said in an interview last week. “We are sticking with a hesitant approach in that we will just continue to hold existing names.”