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Capital Markets

Two Japanese banks fight over panda bond bragging rights

BTMU and Mizuho both claim the honor of being first Japanese issuer

Shi Yaobin, China's vice finance minister, front left, at a Dec. 22, 2017, signing ceremony in Beijing with Takao Ochi, Japanese parliamentary vice minister of the Cabinet Office, front right. The two sides agreed to a framework that included the issuance of panda bonds by Japanese companies.   © Kyodo

TOKYO -- In a rather rare public spat among Japanese financial institutions, Bank of Tokyo-Mitsubishi UFJ and Mizuho Bank are each insisting it is the first Japanese business to issue yuan-denominated bonds on the Chinese mainland.

Photo finish

BTMU and Mizuho put forward their contradicting claims through their press releases. Mizuho said Friday that its 500 million yuan ($77.6 million) float will be "the first panda bonds to be issued by a Japanese bank."

Not so fast, BTMU said Monday. The Mitsubishi UFJ Financial Group unit is actually "the first Japanese company" to offer panda bonds, a yuan-denominated corporate debt instrument issued on the Chinese mainland, to the tune of 1 billion yuan.

Who is right? The Mizuho Financial Group unit was indeed the first Japanese bank to gain approval from the People's Bank of China to issue panda bonds, receiving the central bank's blessing on Dec 22. BTMU got the green light on Jan. 4. BTMU's panda bonds, however, were granted a securities trading code ending in "001," according to its press release.

Japanese corporations operating on the mainland are vulnerable to the impact of China's capital controls if they rely on funding sent from their headquarters back home. Panda bonds expand their fund-procurement options and reduce the regulatory risk, since the debt instrument allows them to raise yuan locally while tapping their Japanese parents' solid credibility.

BTMU and Mizuho fought over their claims to be the first Japanese issuer because they know how important access to the panda bond market will be for Japanese manufacturers operating in China. But the root of the two banks' jostling goes deeper.

Bruised pride

In China, there is an old saying to "never forget the well-diggers," or those who contribute to national development. One of those well-diggers is the Bank of Tokyo, one of BTMU's predecessors. That bank used to operate 37 branches on the mainland, a number surpassing BTMU's current network.

Because of that history, "the former Bank of Tokyo is held in esteem within the Chinese financial industry," said a source connected to Sino-Japanese financial channels.  

When the Bank of China encountered problems raising dollar-denominated funds following the 1989 Tiananmen Square crackdown, the Bank of Tokyo helped alleviate the funding crunch.

Two decades later, during the global financial crisis in 2008, BTMU, a global behemoth birthed from mergers among the Bank of Tokyo, Mitsubishi Bank and UFJ Bank, was hurting from a lack of dollar funds. Then, it was the Bank of China that reportedly came forward with a helping hand.

BTMU was the first bank to issue yuan-denominated bonds in Hong Kong and also in Tokyo. The megabank took a lot of pride in the deep ties it built in China, as well as its contributions to the yuan-denominated bond market.

That the one-party state granted Mizuho onshore approval first dealt a heavy blow through BTMU ranks. "It doesn't affect the business itself," said one senior BTMU executive, but the disappointment was palpable nonetheless.

Shifting tides?

Mizuho Financial Group also claims strong ties with China, as it was created through mergers involving Industrial Bank of Japan, which had established a large footprint there. With the aim of becoming the first Japanese business to issue a panda bond, Yasuhiro Sato, president of Mizuho Financial Group, visited China last year, as did Mizuho Bank President Koji Fujiwara.

Sato and Fujiwara met with Chinese finance officials and the brass at the People's Bank of China. The group also established points of contact with Japanese authorities. Mizuho effectively won approval to issue panda bonds during a meeting with Chinese officials in May of last year.

The question remains whether Mizuho got picked first due to the timing of the application process, or due to a seismic shift in the hierarchy among Japanese banks. "No one knows but the People's Bank," said an official high up in Japan's Financial Services Agency.

The issuance of panda bonds itself is no longer a novelty, since banks from the U.K. and Canada have already floated such bonds.

While there may be different opinions on which Japanese bank is right, many agree that the issuance of panda bonds would not have been granted for Japanese businesses if not for the recent thawing of diplomatic tensions between Japan and China.

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