Nomura Holdings, which reclaimed the top spot for underwriting Samurai bonds last year, says 2016 will be marked by bank capital-boosting debt that have offered yields seven times what local government notes pay.
Japan’s largest brokerage managed ¥364.9bn ($3bn) of offerings by overseas issuers for an 18.7% share, followed by Morgan Stanley at 17.8%, according to data compiled by Bloomberg. 
Sales fell 25% from a record in 2014 to ¥2tn last year, even as lenders including Societe Generale and Credit Agricole issued their first yen bonds that may count as capital under new banking rules.
Subordinated Samurai bonds sold by the French banks offered Japanese investors some of the highest-paying yen-denominated debt in 2015 with coupons exceeding 2%. 
Global regulators said in November that the world’s biggest banks may need to raise as much as $1.2tn under the rule for total loss- absorbing capacity, or TLAC, aimed at avoiding future government bailouts. 
That’s on top of the additional capital lenders need under tougher Basel III regulations.
“In the current yen bond environment there aren’t that many products that offer investors coupons of about 2%,” said Akihiro Igarashi, an executive director at Nomura’s syndication department in Tokyo. “Investors who see that as attractive are buying and their numbers are increasing.”
Daiwa Securities Group, which led Samurai underwriting in 2014, fell to fourth position behind Sumitomo Mitsui Financial Group, while Nomura moved up four places.
The Financial Stability Board, created by the Group of 20 nations in the aftermath of Lehman Brothers Holdings’ collapse, said in November that most systemically important banks must have liabilities and instruments “readily available for bail in” equivalent to at least 16% of risk-weighted assets in 2019, rising to 18% in 2022. 
Lenders in emerging markets were given a longer period to meet the requirements. Morgan Stanley said in a report last month British banks will ramp up issuance of senior unsecured bonds at the holding company level.
 Lenders such as Societe Generale and Rabobank will probably continue to sell more lower-level Tier 2 debt in 2016 as some issuers seek to offer greater support to senior bondholders, it wrote.
Sales of subordinated Tier 2 notes more than tripled to ¥167.5bn in 2015 with France’s BPCE paying investors a coupon of 2.263% to buy its 10-year debt. 
Barclays sold its first senior Samurai bonds that may be written off in a bank resolution in September, paying 0.823% on five-year notes. 
That compares with a yield of 0.035% on December 30 for Japanese government debt of the same maturity. “Samurai bonds offer higher spreads than local bonds and investors are buying them to boost returns so demand is only likely to increase,” said Yutaka Ban, a chief credit analyst at SMBC Nikko Securities. 
The ability of the market to absorb bank-capital debt will be a focal point this year, he said, adding that subdued lending in Europe and a dearth of US issuers may mean Samurai sales decline or only gain slightly.
BPCE was the biggest issuer of Samurai debt in 2015, raising ¥216.3bn in three sales. It was followed by Credit Suisse Group and Standard Chartered, which debuted its first Samurai bond. 
Financial organisations, a category that includes state institutions, increased their share of issuance in 2015, with 90% of sales, up from 84% a year earlier.
European borrowers sold 73% of Samurai debt, compared with 61% in 2014. BPCE, Credit Agricole and Credit Suisse tapped Japanese investors in June and July even as concerns about a possible default by Greece roiled overseas debt markets.
Non-European issuers included a 100bn yen sale by Indonesia, while Royal Bank of Canada sold its first Samurai since the global credit crisis.
“Diversification of funding remains undoubtedly a key point for issuers,” said Nomura’s Igarashi. “The Samurai market proved its worth in that sense in 2014.”
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