Japan retail investors lap up uridashi water bonds

* Development bonds seen as source of new customers

* Uridashis from international agencies weathering euro woes

* Top-rated issuers give savers a sense of security

By Kaori Kaneko

TOKYO, May 17 (BestGrowthStock) – Japanese households, with $8.7
trillion in cash and savings, are becoming a bigger target for
foreign currency (Read more about trading foreign currency. development bonds, with securities firms hoping
the higher yields and social contributions will attract more
savers.

Retail investors, used to chronically low domestic returns,
have traditionally been a market for foreign currency (Read more about trading foreign currency. debt issued
in Japan, known as uridashi bonds, in particular in higher
yielding currencies such as the Australian dollar.

Now securities firms are adding a new angle: development
bonds to fund water and “clean energy” projects. And they say
investor interest in debt from top-rated international agencies
is weathering turbulence from the euro zone’s fiscal problems.

Last month, Daiwa Securities sold rand and Aussie dollar
bonds from the Asian Development Bank to finance water schemes
and this month it is offering an “ecology bond” for the European
Investment Bank to finance projects to prevent climate change.

It says the two tranches it sold for the ADB, totalling 60
billion yen ($650 million), are the largest of these types of
bonds yet sold in Japan.

The push has been led by Satoru Yamamoto, Daiwa Securities’
deputy general manager for product planning, who says the debt is
appealing as it is simple for investors to understand and as it
is clear exactly how funds will be used.

“Japan has lagged behind in business like this and I would
like to increase it,” said Yamamoto, 35, who branched into
development bonds after working with the International Finance
Corporation on a microfinance bond project in 2009.

Uridashi bonds to fund social and environmental projects have
totalled 145 billion yen so far this year, compared with 92
billion yen last year and 44 billion yen in 2008, Daiwa
Securities says.

The issuance is roughly a third of the broader
foreign-currency uridashi market, where supply for this year
totalled about 436 billion yen by April, according to Reuters
calculations.

Outflows of Japanese savings into foreign
currency-denominated assets and uridashi bonds have helped push
the yen down in the past and the currency market is watching the
appetite of ordinary Japanese for foreign assets — although the
tide is not that strong just now, with the yen remaining firm.

Bond houses say development bonds are attracting new
customers who want top-rated issuers, better returns than they
get domestically, and a sense of making a social contribution.

“It would be a lie if I say there is no impact at all from
Greece’s fiscal trouble. But from a currency perspective, the
Australian dollar has slipped from its highs, making it easier
for investors to buy these bonds,” Yamamoto said.

“I don’t see investors refraining from investment in such
bonds from top-rated issuers so far.”

IMPORTANT MARKET, YOUNGER INVESTORS

Households’ cash and savings hit a record 803.5 trillion yen
at the end of 2009 and securities firms are trying to tap this
source of funds.

About 49 billion South African rand, or $6.4 billion, in
uridashi bonds mature this year, and they hope the bonds issued
by big non-sovereign entities will keep people invested.

Nomura Securities and HSBC have handled bonds supporting
environmental projects this year and Mizuho Securities sold New
Zealand dollar-denominated “clean energy” bonds issued by the
African Development Bank (AfDB) in March.

The AfDB is no stranger to the uridashi market but the bonds
were its first in this field for Japanese retail investors.

HSBC and Mitsubishi UFJ Morgan Stanley Securities, which both
sold vaccine bonds in 2009, intend to do more of these.

“We would like to offer not just bonds with higher coupons
but also an opportunity for customers to get involved in the
world,” said Kenichi Tatsuzawa, CEO at HSBC Securities in Japan.

Volatility risk in emerging currencies mean 2- to 3-year
bonds are popular, and the main market is affluent retirees.

But Daiwa’s Yamamoto also wants to attract younger people.

“Those who are in their 20s and 30s won’t be interested in
uridashis simply with higher yielding currencies,” he said.

“But we can explore the younger generation with bonds which
have a social and environmental character.”

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(Editing by Charlotte Cooper)

Japan retail investors lap up uridashi water bonds