Japan is an outlier in the global SLB market. SLB issuance has grown from 2022 to 2023, with the annualised issuance in 2024 YTD higher still. In contrast, global issuance has declined 62% since 2021.
The style of SLBs issued in Japan is different, too. Issuers prefer to use single premium payment structures, which pay out on maturity or after a target is missed. This is in contrast to the step-up coupon model favoured in the rest of the world. Moreover, Japanese issuers are more likely to pay these premiums to charitable organisations or to emissions credits vendors than to investors.
These factors combine to lower the financial materiality of Japanese SLBs. This generates a lower option value which may result in less attractive funding spreads for issuers.
However, Japanese investors have demonstrated enthusiasm for these distinctive structures, powering the domestic market forward even as the global market has been in retreat.
