Sumitomo Mitsui FG:New bonds issue,we see more value in 10Y space

According to Bloomberg, SMFG announced IPG for its three-tranche USDdenominatedtransaction today. The company is printing 5Y FRN, 5Y fixed atT+105, and 10Y fixed at T+125bp. In this note we will focus on the fixed-ratebonds in the upcoming deal. To begin with, it must be said that the market hasbeen awaiting Japanese TLAC supply for quite some time now. Amongst thethree megabanks, the total non-JPY issuance of TLAC debt YTD has amountedto ~USD10.5bn which is significantly below our full year expectation ofUSD30-33bn equivalent. The latest USD-denominated Holdco TLAC deals fromJapan printed in Feb-17 (MUFG and Mizuho), while the last USD transactionfrom SMFG itself was in Jan-17. As megabanks in Japan are pursuing astrategy of replacing maturing Opco debt with new Holdco TLAC limiting netnew supply, we believe the appetite for the new deals would be quite strong.

    We are yet to see the Jun-17 financial data from Japanese banks, howeverback in Mar-17 (end of financial year) we recall all Japanese megabanksreporting visibly improving capital ratios (sequentially), especially T1 and CET1,with SMFG leading the pack with their total CAR of 16.93% and T1 of 14.07%.

    For reference, this compares to capital ratios seen in Singapore and HK