This week's largest deal was Softbank's IPO of its mobile telecommunications business. The over-allocation feature already was exercised, taking it to USD23.5 billion equivalent, Japan's largest-ever share sale and the second-largest worldwide. The issue is unusual: its main driver has been domestic retail interest, covering some 90% of the offering, stimulated by a generous 5% initial dividend yield and a heavy domestic retail marketing campaign.

Elsewhere Gazprom raised JPY65 billion (USD576 million) of ten-year debt from Japan's domestic Samurai market. The deal enjoyed credit support from state-entity Japan Bank for International Cooperation. The issue was priced at 1.01%. The offering reportedly is the second-largest yen-denominated deal to date for an emerging market borrower, and was oversubscribed. The bulk of demand was from domestic Japanese institutional investors. The deal is Gazprom's first Samurai deal for over a decade. The size raised is below the USD1 billion prior target announced in February 2018 and reconfirmed in September. ING also has raised USD1 billion equivalent of TLAC-eligible debt from the Japanese bond market, despite having withdrawn a planned Tier 2 offering on 3 December.

Our Take

Reports suggest that Softbank's share price was calibrated to enable the company - a well-established and seemingly-mature business and thus with limited prospects for rapid growth - to attract retail support through the 5% initial dividend yield, well above bond market alternative investments. It would seem that this generous return, combined with the very heavy retail marketing campaign, are the main drivers for Softbank's apparent success, rather than wider appetite for Japanese equities.

Gazprom's success in the Samurai market also is impressive but the support from JBIC implies that investors were buying an instrument at least partially representing Japanese state risk rather than a pure exposure to Russian risk and the company. The sizeable volume and low coupon are unsurprising given the hybrid configuration: Gazprom's true cost of funds will include the cost of JBIC's support arrangements.

For Gazprom, use of yen-denominated funding is wholly logical and fits within its strategy of diversifying funding sources ahead of the potential expansion of US sanctions. JBIC signed a deal with Gazprom in September 2017, in which it stated that as Japan's policy based financial institution, it would "continue to build relations" with major energy sector partners "in the areas of oil and gas development and LNG procurement". It pledged at the time to "provide financial support to secure stable sources of energy for Japan", along with making efforts to create business opportunities for Japanese companies.

As a closing item, we'd like to draw attention to the market forecast made by KfW in presenting its 2019 borrowing plans (it plans to raise EUR80 billion next year, versus the EUR75.5 billion it has funded through 140 deals in 2018). It highlights that 2019 will test the impact of the ending of ECB quantitative easing. Dr Frank Czichowski, Treasurer of KfW Group, noted that the market already has undergone modest correction in response to the announcement that the ECB's Asset Purchase Programme would be ended this year. On this basis, KfW "only expect to see a gradual adjustment in bond prices next year, and in the medium term we expect it to normalise". This seems in line with our own forecasts, which project that the ECB will move cautiously and gradually: moreover, since markets have had ample warning of the ECB's plans, it would be surprising if they reacted sharply to the actual ending of the APP.