Infrastructure Finance via the Yen Capital Markets

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Infrastructure Finance via the Yen Capital
Markets Exploring opportunities
February 14th. 2008, New Delhi Tetsuya
Kodama Managing Director, Global Capital
Markets Deutsche Securities Inc. Tokyo, Japan
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Growth of Yen Markets for International
Issuers Section 1
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Growth of Yen Markets for International Issuers

• The following dynamics continue to increase
  interest among Japanese investors to look for new
  quality investment opportunities, allowing the
  yen markets for international issuers to grow
• Continuation of low interest rates in Japan vs
  other major currencies
• Investors need to look for spread products
• Absolute yield could be attractive to issuers
• Supply of domestic corporate bonds are stable,
  and the spreads remain tight
• Since mid 2007, spread levels available in
  international markets have become extremely
  attractive from the domestic investors viewpoint
  (while still being attractive to issuers)
• With most of the above conditions expected to be
  sustained well into 2008 or even 2009, we expect
  a continued growth of the Yen markets for
  international issuers
• So far, strong concentration in Financial names ?
  Interest to see non financial names/ credits
• Samurai Bonds (Domestic Bonds) vs Euro-yen Bonds
  (International Bonds)
• Many Japanese pension funds and regional
  financial institutions can still only buy
  domestic bonds (Samurai format is domestic) but
  not International Bonds (Even in Yen, Euro-yen /
  Global-Yen bonds are treated as international
  bonds)

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Samurai Issuance (2000)
Samurai Issuance
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Samurai Issuance (2006)
FRN
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Samurai Issuance (2007)
FRN
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Samurai Issuance (2007)
FRN Structuerd
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Samurai Issuance (2008)
FRN
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Euro / Global Yen Issuance (2006)
FRN
10
Euro / Global Yen Issuance (2007)
FRN
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Euro / Global Yen Issuance (2007)
FRN
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Who is behind the growth? Section 2
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Major Investors in Japan (1)
Description
Investment Criteria
Target maturity
Minimum Required Rating (RI / JCR)
Investment size(100mil)
City Banks

• City banks offer banking services to relatively
  many large corporate customers in Japan. Due to
  the series of mergers, Japan is now left with
  several mega banks. Currently there are 10 City
  Banks.

• Liquidity
• Spread
• BIS risk weight

• 210 years. (Mainly up to 5 years)
• 35 years FRN

• BBB

• 10

Regional Banks

• The principal mission is to contribute to the
  social and economic development of the Japanese
  regions. Traditionally, there were 64 banks which
  were referred to as "regional banks" in Japan,
  but due to the conversion of Sogo banks , this
  number has now doubled.

• Yield
• BIS risk weight
• Spread
• Liquidity

• 110 years.
• Mainly up to 5 years for non-Japanese
• 35 years FRN

• BBB
• Preferred AAA

• 5 or 10

Trust Banks

• Trust banks are unique among Japanese financial
  institutions in that they combine financing
  services with asset management services. Pension
  funds are big player of public corp. bond and
  Samurai.

• Liquidity /Spread
• BIS risk weight

• 210 years
• 35 years FRN
• .

• BBB

• Own portfolio

• 10

• Index
• Spread / Liquidity

• 220 years.

• BBB
• Preferred AAA

• Pension trust

• Active10
• Passive1

Life Insurance Companies

• The number of life insurance companies operating
  in Japan is 38, as of March 2006. More than 90
  of the population owned life insurance and the
  amount held per person was at least 50 greater
  than in the United States. The most important
  player of long dated bond (10 year or longer).

• Yield
• Duration (ALM)
• Spread
• Liquidity

• 240 years.
• Preferred 1020 years

• BBB
• Preferred A or better

• 10

Non-life Insurance Companies

• As of December 1, 2006, a total of 48 general
  insurance companies are operating in Japan. A
  total of 26 companies were licensed as domestic
  insurers, including 4 foreign capital domestic
  insurers, while 22 companies were licensed as
  foreign insurers.

• Liquidity
• Yield
• Spread

• 230 Years
• Up to 5 years preferred

• BBB
• Preferred A or better

• 5 or 10

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Major Investors in Japan (2)
Description
Investment Criteria
Target maturity
Minimum Required Rating (RI / JCR)
Investment Size (100mil)
Asset Management

• Rating
• Liquidity

• Up to 5 years
• Preferred 13 years
• 15 years FRN

• BBB
• Preferred A or better

• 2 or 3 10

• As of July 2007, over 120 asset management
  companies are operating in Japan. Pension Funds
  are big player of public corp. bond and Samurai
  bond.

• Investment trust

• Pension Fund

• Index / Spread
• Liquidity

• BBB
• Preferred BBBA

• Active10
• Passive1

• Any maturity

Public Entities (Japan Post)

• As a institutional investor, Japan Post is the
  largest in a public sector in Japan. It runs the
  world's largest postal savings system and is
  often said to be the largest holder of personal
  savings in the world. Now it is under the process
  of privatization toward March 2017.

• Yield
• Spread
• Liquidity
• Rating
• Issuers industry

• 320 years
• Preferred 210 years

• A

• 20 or 30

Public Entities (Pension)

• Gov. Pension Investment Fund is the most biggest
  pension fund manager and big player of corp.
  bond.

• Index

• 230 years

• BBB
• Preferred A or better

• 5
• Large fund 20 or 30

Public Entities (Regional)

• Mainly, Mutual Aid Association which is a pension
  fund for employees of public sector.

• Rating
• Yield

• A

• 10 50

• 220 years
• Preferred 510 years

Upper organization of regional financial
Institutions

• Federations of Cooperative Financial
  Institutions. The Norichukin Bank which is the
  central bank for the Japanese agricultural,
  forestry, and fishery cooperatives is the largest
  upper organization.
• Zenkyoren is managing agricultural insurance
  money and one of the biggest 10 and 20 year
  player of high grade bonds.

• Relative value
• Credit spread
• Yield
• Risk weight

• BBB

• 220 years

• 10 or 20 100

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Major Investors in Japan (3)
Description
Investment Criteria
Target maturity
Minimum Required Rating (RI / JCR)
Investment Size (100mil)
Regional financial Institutions

• Regional financial Institutions, such as Shinkin
  Bank, Shinkumi Bank, Rokin (Labor) Bank and JA
  Bank

• Yield
• Spread
• Risk weight
• Liquidity

• 220 years
• Preferred 310 years
• 25 years FRN

• BBB
• Preferred AAA

• 5 or 10

Non-Profit Organization

• Such as foundation, school and religious corp.

• Yield
• Rating

• 130 years

• BBB
• Preferred high grade

• 5 or 10 30

Corporation

• Over 1,000 corporate are covered by DB and main
  target are cash rich companies.

• Yield
• Rating

• 110 years
• 15 years FRN

• BBB
• Preferred high grade

• 550

• 10

International Investors

• Can be categorized into non-resident and resident.

• Public sector
• Asset swap spread

• 140 years

• Not particular

• resident

• Non-resident
• (Bank, Asset Manager, Insurance)

• Asset swap spread

• 140 years

• Not particular

• 30200

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How to utilise the Yen capital markets? Section 3
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Investor Characteristics and Solutions

• Investor Characteristics
• The Japanese investor base tends to have a very
  flat credit curve, until a certain point where
  it become vertical
• Past experiences with international credits
  created a conservative / Risk averse stance
• Past experiences include Russia, Xerox, Enron
• On the other hand, they would be big investors of
  credits they feel used to / comfortable with
• Examples include Thailand. Increased interest in
  India
• How to bring the investors closer
• Increase information flow to increase
  familiarity
• Support transaction via structuring to take away
  the unacceptable level of uncertainty

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Sample concept ?Public Support of project via
providing risk money
Assets
Senior Debt Bond Loans
Senior Bond Investors Senior Lenders
Sponsors Financial Investors Etc.
Capital
Mezzanine / Capital
Cash Flows
Public Funds and/or Support
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Deutsche Bank Group in India and the Yen
Markets Appendix
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2007 Deutsche Bank Group Credentials in India
Bank of Baroda
ICICI Bank Ltd
USD 300 million
GBP 350 million
6.625 15NC10 Note due
6.250 Fixed Rate Notes due 2010
2022
Joint Bookrunner
Joint Bookrunner
DEUTSCHE BANK IFR Asia Bank of the Year 2007
May 2007
May 2007
ICICI Bank UK PLC
ICICI Bank UK PLC
ICICI Bank Ltd
ICICI Bank Ltd
USD 500 million
USD 500 million
EUR 500 million
EUR 500 million
Triple A Assets Asian Awards 2007
Floating Rate Notes due 2012
Floating Rate Notes due 2012
Floating Rate Notes due 2009
Floating Rate Notes due 2009
Joint Bookrunner
Joint Bookrunner
Joint Bookrunner
Joint Bookrunner
Best Investment Grade Bond 2007 ICICI Bank
USD2bn 3-tranche Deal
February 2007
February 2007
March 2007
March 2007
REPEAT WINNER 2005, 2006
3-TIME WINNER 2005, 2006, 2007
3-TIME WINNER 2005, 2006, 2007
INAUGURAL WINNER
REPEAT WINNER 2006, 2007
Best International Bond House
Asia Bond House of the Year
2006
December 2007
December 2006
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2007 Deutsche Bank Group League Tables (Yen)
Thomson International Financing Review
January 5
2008 Issue 1715
ifr 2007 YEARLY TABLES
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IFR Magazine Bond House of the Year 2007
Few houses crop up in virtually every
conversation regarding bonds, no matter where in
the world it is held or what asset class is under
discussion. Deutsche Bank is one of those few,
boosting a stunning breadth of business
stretching from high-grade to high yield and
mainstream to emerging currencies... In a
volatile year, Deutsche Bank identified trends
early and assisted clients across a range of
structures with no currency bias It is also
notable that Deutsche was first bank issuer to
return to market after the dislocation of the
summer, when confidence was at its nadir The
bank played a key role in reopening the primary
market in the midst of the global liquidity
crisis.
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