Mitsubishi UFJ Financial Group has mandated banks to sell dollar-denominated additional tier 1 bonds, in what looks set to be the first such offering in the U.S. currency by any Japanese lender.
The nation's banks have long issued AT1 notes in yen because of lower borrowing costs. But they may consider selling such debt in dollars to help mitigate foreign-currency risk in their capital ratios, given they can get squeezed when the yen depreciates, Bloomberg Intelligence credit analysts including Pri De Silva wrote in September. About a third of MUFG's assets are denominated in foreign currency, the BI analysts wrote.
For the MUFG deal, banks will arrange a series of investor meetings and calls in Asia, Europe and the U.S. starting on Oct. 16, according to information from a person familiar with the matter. It's expected to be a benchmark-size offering of perpetual bonds that can be called after 5.25 years, said the people, who asked not to be identified because they're not authorized to speak about it.
The offering is aimed in part to help diversify AT1 funding, which is concentrated at domestic institutional investors, and improve mid- to long-term capital management, according to an email from MUFG.
If it proceeds, the deal would be the first such offering by any Japanese bank in dollars, according to data compiled by Bloomberg.
New issuance of AT1 instruments in dollars restarted in the summer after a freeze triggered by the U.S. regional banking crisis and the historic $17 billion wipeout of Credit Suisse's securities. In deals similar to MUFG's issue, an AT1 bond sold by Spain's Banco Bilbao Vizcaya Argentaria SA in September is currently indicated at a yield of almost 10%, based on data compiled by Bloomberg, while a preferred stock issue by Citigroup the same month is indicated at about 8.4%.
MUFG sold 570 billion yen ($3.8 billion) of bonds including AT1s in May in one of the biggest offerings in the local market by a domestic financial institution. At the time, it marked the second offering of AT1 bonds in Japan by a major bank since Credit Suisse's bonds got written down by the Swiss regulator as part of its rescue by UBS Group AG.
The market for subordinated bank debt has since rebounded, a Bloomberg index shows. AT1 bonds follow rules developed after the global financial crisis to ensure that creditors are on the hook if a bank fails.
