Compagnie de Financement Foncier could launch the first covered bond in Samurai format in the coming months, potentially opening up the Japanese investor base to the asset class.

Samurai bonds are publically issued yen-denominated securities sold by foreign issuers mainly to Japanese investors under Japanese law. Previously, yen-denominated covered bond issuance has been restricted to international formats such as Euroyen.

Sandrine Guérin, deputy CEO of CFF, revealed the French issuer’s plans at a conference in Tokyo today (Monday).

According to Marko Nikolic, head of covered bond origination at Nomura – which has been arranging CFF’s planned issuance – work on the project has been underway for around a year, involving long discussions with the Japanese regulators about the treatment of the asset class, and he paid tribute to CFF’s work in paving the way for covered bonds in Japan.

“They are one of the most innovative issuers in the markets,” he said, “as they definitely realise the potential of opening new markets. They are probably one of the top three issuers in the world, so it makes sense for them to employ the resources and spend the time on breaking new ground even though it can be as tough as this.”

Nikolic said that CFF should benefit from a much broader audience in Japan by using the Samurai format.

“The investor base for yen issuance off an EMTN programme would be, let’s say, 50-odd investors, whereas the investor base for the Samurai products would be more like 300,” he said. “All of a sudden you are expanding into all these smaller regional banks that wouldn’t be able to look at a covered bond unless it has the Samurai docs in place.”

He suggested that the product should be positioned relative to the sovereign, supranational and agency market rather than credit products.

No firm timing has been set for any deal, which will be partly dependent upon the yen/euro basis swap.

Japan does not have covered bond legislation, although there has been work on a legal framework and Japanese financial institutions have explored issuing covered bonds using contractual structures and legislation in other countries.