A negative yield achieved yesterday (Thursday) on a €1bn five year deal by SMBC is the first ever on a non-legislative covered bond and the first on any public offering from a Japanese private company, according to the issuer, who said the success could encourage other Asian issuers to follow.

Following a mandate announcement on Tuesday, Sumitomo Mitsui Banking Corporation (SMBC) leads Goldman Sachs, SMBC Nikko, Barclays, Crédit Agricole and UBS went out with guidance of the mid-swaps plus 28bp area yesterday morning for a five year euro benchmark issue. A €1bn deal was ultimately priced at plus 24bp on the back of around €1.8bn of demand.

The order book is bigger than those achieved on SMBC’s three previous euro benchmarks, while the pricing was deemed to imply a new issue premium of just 1bp, for a trade that offered a negative yield of minus 0.168%.

“I am satisfied with the end outcome and it matches my expectation,” Atsushi Ouchiyama, head of debt strategy and issuance, treasury department, SMBC, told The CBR. “The new issue premium of 1bp is in line with current market conditions.

“Regarding yield, this is the first ever negative yielding issuance of a non-legislative covered bond in history, as well as the first ever negative yielding public offering by a Japanese private company,” he added. “I believe this negative yield outcome has opened the door for the Asian region’s covered bond issuers, who have remained hesitant to test the appetite in negative territory.”

Ouchiyama said the issuer had been monitoring the market since the beginning of Covid-19 crisis, and entered the market after it was successfully opened by deals for Berlin Hyp last week and MünchenerHyp and BPCE SFH this week.

“We experienced market dislocation between April and May, and decided to wait until this market dislocation came back to normal,” he said. “After summer holiday, we found market functioning very well and decided to consider benchmark offering.”

After the deal was announced on Tuesday, SMBC held a virtual roadshow before launch.

“It went well and was efficient,” said Ouchiyama. “We explained the expected impact of Covid-19 on our earnings, its impact on the Japanese housing market, and Japan’s fiscal policy responses and the Bank of Japan’s monetary policy responses to the pandemic.”

Syndicate bankers said SMBC’s investor relations work had contributed to the increased audience for its covered bonds.

“The book size of €1.8bn was larger than our inaugural issuance,” noted Ouchiyama. “In terms of investor type, we had larger bank treasury-type orders then before even though it is not an LCR-eligible covered bond.”

SMBC now has around €6bn of covered bonds outstanding.

“This will grow further,” said Ouchiyama. “We would like to have regular access to this market.

“Hopefully we could see another Japanese bank’s inaugural transaction soon,” he added.