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TRLPC-Japan's banks compete to lend to JOGMEC at sub-Libor rates
February 12, 2015 / 2:02 PM / 3 years ago

TRLPC-Japan's banks compete to lend to JOGMEC at sub-Libor rates

TOKYO, Feb 12 (Reuters) - A heavy oversubscription despite low pricing on a ¥41.241 billion ($352 million) loan for state-owned energy company Japan Oil Gas & Metals National Corp (JOGMEC) shows Japanese banks’ hunger to lend to top companies, bankers said on Thursday.

The interest rate for each lender was set by an auction, which gave an average bid of just under 3 basis points (bp) and a highest bid of 9bp on the fixed-rate one-year bullet term loan.

JOGMEC’s loan is fixed rate and with an average bid of just under 3bp, pays substantially less than Japanese Yen Libor, which is 10.4bp for three months, 14.1bp for six months and 26bp for one year.

Japanese regional banks, which traditionally invest in Japanese Government Bonds (JGBs), are the main lenders to JOGMEC’s government-guaranteed loan, which received bids totalling ¥161.5 billion and was around four times oversubscribed.

Liquid Japanese banks are facing a dearth of alternative investment options. Demand for loans from Japanese companies is weak and loan volume dropped 22 percent in 2014 to $216 billion, according to Thomson Reuters LPC data.

“They (regional banks) invest in the loan because they still think it is a better use of money than buying JGBs,” a banker said.

This is not the first time that JOGMEC has been able to secure sub-Libor pricing. A previous ¥96.5 billion, one-year bullet term loan was completed in September 2014 with a lower average interest rate of 2.2bp, lower than 5.4bp on a loan in April 2014.

Japanese banks are able to offer lower pricing on government-guaranteed loans than corporate loans, which are typically priced at less than 10bp and are priced over Yen Libor or Tibor.

High rates of excess deposits have boosted Japanese banks’ liquidity, and driven corporate loan pricing lower in the last couple of years.

“Government guaranteed loans have no risk weighting. Banks are forced to buy such loans at razor-thin pricing for asset liability management purposes because there are no good alternatives”, a banker said.

Two-year JGBs sold at negative yields for the first time in December, underlining strong demand for the debt under the Bank of Japan’s qualitative and quantitative easing policy. Three-month and one-year bills had already been sold at sub-zero yields.

Other than government-guaranteed loans, Japanese local governments are also able to raise loans at sub-Libor pricing using JGBs as a benchmark, bankers said, giving stable but low yields.

“It has been an unfavorable environment to us,” the first banker said.

Japanese banks are aggressively expanding their overseas lending businesses in a bid to offset due to weak domestic demand for loans.

Their appetite to book assets is being seen outside Japan as they use lower funding costs to lend at rates that other international banks find hard to match.

A HK$55 billion ($7.1 billion) loan for Cheung Kong Group’s newly created Cheung Kong Property Holdings Ltd in Hong Kong is expected to set a new Asian blue-chip pricing benchmark.

The deal received several $1 billion-plus commitments from highly liquid banks, including Japanese banks, at less than 100bp over Libor - lower than an anticipated 120bp level.

The deal finances the reorganisation of Asia’s richest man Li Ka-shing’s Hutchison Whampoa Ltd conglomerate into property and non-property businesses. (Editing by Tessa Walsh)

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