ING opens the door for Japan's Pro-Bond market

ING has a long and illustrious history as one of the Netherlands’ leading financial institutions. But in the aftermath of the Lehman collapse in 2008, the bank was forced to seek state aid, following which it pledged to hive off its insurance arm and divest sundry other businesses. Although ING has recovered sharply since those dark days, its restructuring process continues.

Against this background, the bank’s position as the first issuer to tap the Tokyo Pro-Bond market is particularly noteworthy.

Launched in 2011, the market allows foreign borrowers to issue bonds in Japan using English documentation. Previously, foreigners could only access Japanese institutions on their home turf using the Samurai market, which requires greater disclosure and more complex documentation, all in Japanese. The Pro-Bond market is supposed to be as simple and flexible as the Euromarket, providing issuers with access to Japanese liquidity and providing local institutions with the opportunity to invest in non-Japanese securities.

Learning curve

In time, this may well be the case. But for ING, as a trail-blazer, the process was rather lengthy.

“Barclays came to us with a proposal in the summer of 2011 and it seemed like a good idea so we started working on a deal, says Martin Nijboer, head of long-term funding at ING. "Obviously, it took some time to prepare, as it was a new product in Japan and all the documentation was completely new to the parties involved, such as Japanese law firms and the Tokyo Stock Exchange.” 

In fact, the exercise took about eight months from initial talks to launch, during which time documents were prepared and regulatory issues discussed in detail. 

“It was time-consuming but it was certainly easier than a Samurai deal, which requires a lot of legal work and translation and much more disclosure than is required for our other international borrowing programmes such as our Euro-MTN [medium term note] programme. With this Pro-Bond deal, we are using the same sort of documentation as for these other international borrowing programmes so all our investors have the same degree of comfort and access to the same information,” says Mr Nijboer. “It is just like a Eurobond with a Japanese wrap.”

Barclays Capital was the lead arranger but local banks Nomura and SMBC Nikko were lead managers and Daiwa and Mitsubishi UFJ Morgan Stanley were co-leads on the deal. “The Japanese banks know the Japanese investors best but it also made sense to use a non-Japanese bank for a new market. In the end, we achieved a good balance,” says Mr Nijboer.

Testing the waters

ING’s main aim was to diversify its investor base and make itself known among the Japanese investment community. Japanese institutions are deeply conservative, however, so there was no guarantee that the deal would be a success and that key institutions would buy into it. “We expected a rather small deal at first. We thought it would take time for the Japanese to get to know us and the Pro-Bond product,” says Mr Nijboer.

To facilitate the process, ING went on a three-day, non-deal roadshow at the end of February, meeting about 10 leading institutions. Investors were happy enough with ING as a credit but they were less happy with the fragile economic climate in the eurozone, while the innovative nature of the Pro-Bond market was further cause for concern.

The deal was launched on April 4 and neither ING nor the book-runners could be sure it would fly. Many investors seemed interested in theory but no one wanted to be first to take the plunge. Timing was a further challenge. The issue was priced on April 10 and settlement was one week later, giving investors little time to gain the necessary approval for a new market. Fortunately for ING, a key anchor investor came on board, after which the issue gathered momentum.

Broad appeal

“We were really positively surprised by the outcome. We expected the deal to be half the size but in fact more than 40 institutions participated, including all the major banks, Shinkin banks, leading asset managers, regional savings banks and specialised banks,” says Mr Nijboer.

In the end, ING raised Y50.7bn ($634m) offering a 1.4% coupon over two years. Initially, the bank intended to launch a two-tranche deal, issuing two-year and five-year bonds. Ultimately, however, the five-year tranche was dropped. “Investors preferred the idea of two-year paper. As we had already issued quite a lot of five-year paper in other currencies this year, we decided to focus on a two-year issue,” explains Mr Nijboer.

ING’s Pro-Bond programme allows the bank to issue up to Y200bn, so Mr Nijboer is in no doubt that the bank will return to the market. “Diversifying the investor base really pays off. It is a lot of work but you gain access to a whole range of new investors, which is particularly useful in today’s volatile climate. We will definitely be back,” he says.

“It was a very successful outcome for everyone: for us, the lead managers, the Tokyo Stock Exchange and the investors,” he adds.