Central Europe set to tap Samurai demand

By bne IntelliNews October 22, 2012

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Poland, the Czech Republic, Slovakia and Latvia are all planning to tap the Samurai bond market in the coming months, according to reports, as issuers look to diversify their funding base and Japanese investors hunt for yield outside their traditional markets in Western Europe.

Following in the wake of its JPY25bn (€240m) tap of the retail market in May, Poland held talks with investors about an institutional Samurai bond and, after positive feedback, is looking at issuing a three-year and five-year deal, reports International Financing Review. The Czech Republic and Latvia have held meetings with investors in Tokyo in the past couple of weeks, while Slovakia has expressed interest and Croatia is rumoured to be looking too.

The move into the Japanese market sees the Central European states looking to leverage their growing advantages over the crisis torn Eurozone. Outside the single currency and offering better rates of economic growth (save the Czechs), the likes of Poland and Slovakia have seen their yields pulling tighter throughout the year as investors start to shift through the European region. However, the region's sovereigns still offer yields despite strengthening ratings, while several Western European issuers have been downgraded. Tight fiscal discipline has seen the Czech Republic record record low yields in recent weeks, and push to a rating of 'A1/AA-/A+'. Slovak reform and growth has pushed its ratings to 'A2/A/A+', which also puts it at a level acceptable to Japanese investors.

"There is very limited stuff to buy in yen at the moment. Spreads of well-known frequent borrowers in US dollars and euros have tightened and these levels don't work in yen. So investors have to look outside of their previous comfort zone and look to expand it," an unnamed Tokyo-based banker told IFR. "In that sense, Eastern Europe makes sense. There were a lot of one-on-one meetings set by sovereigns like Czech and Latvia during the IMF/World Bank week."

Last week, Poland - absent from the institutional Samurai market since December 2010 - held talks with investors about an institutional Samurai issue and, after positive feedback, is looking at issuing a three-year and five-year deal.

Meanwhile, a Czech government official said that an opportunistic deal could make sense for the sovereign's overall funding mix: "There is a lot of money looking for a home in yen, and these sovereigns offer yield"

Speaking at an event during the IMF/World Bank meeting, Daniel Bytcanek, a director at Slovakia's Debt and Liquidity Management Agency, said his country was looking at testing the yen market next year. The sovereign has no more yen debt, as the JPY15bn three-year Euroyen issue that it did way back in May 1998 has long matured. Croatia and Latvia are also considering issuing in yen.

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