Industry Finance Group

A Message from the Global Head of the Group

The Industry Finance Group focuses primarily on maintaining and strengthening the international competitiveness of various industries in Japan through wide-ranging methods of financing. The Group comprises the Corporate Finance Department, Finance Office for SME, the Marine and Aerospace Finance Department, and the West Japan Office.

Amid a continuing strong appetite for overseas investment by Japanese companies, particularly for overseas mergers and acquisitions (M&A), the Group provided loans, equity participations, and guarantees amounting to ¥1,580.2 billion for 264 commitments in FY2015.

JBIC is in the second year of the Medium-term Business Plan (FY2015-2017). The plan calls for JBIC to step up measures targeting "priority issues." In the area of Manufacturing and other industries, JBIC will focus further efforts on (1) strengthening support for the overseas business deployment of various industries which are the basis of the Japanese economy; and (2) contributing to the development of competitive Japanese technologies and business models into growing industries through overseas business deployment, and, in the area of mid-tier enterprises and small and medium-sized enterprises (SME), on supporting mid-tier enterprises and SME overseas business expansion, utilizing JBIC's characteristics.

Shigeki Kimura
Managing Executive Officer
Global Head of Industry Finance Group

 

Business Environment and Priority Issues

Japanese Companies Targeting Larger M&A

Despite the slowdown sparked by the global financial crisis in 2008, direct investment by Japanese companies overseas exceeded ¥100 billion in 2011 in consequence of the sudden appreciation of the yen. Subsequently, the yen has turned to fall in exchange rate from 2013, but the direct investment overseas by Japanese companies has remained steady, reaching ¥128.6 billion in 2015 (Figure 1).

Amid steady direct investment overseas by Japanese companies, their overseas M&A have surged since 2009, on the back of declining acquisition prices due to the strong yen. This level of activity has continued, irrespective of subsequent forex trends. The RECOF Corporation M&A database has recorded an ongoing rise in M&A: from 519 in 2012 to 561 in 2015.

This trend of M&A activities shows that Japanese companies are seeking to substitute shrinking domestic market by businesses in new markets. M&A aimed at achieving an edge on global competitors through scale has also been a major business strategy for Japanese companies.

While 20% of M&A held by Japanese companies exceeded ¥5.0 billion between 2001 and 2005, the percentage doubled to 40% in the 2011-2015 time frame (Figure 2). Such M&A deals, especially in the telecommunications and healthcare industries, are increasing in size, encouraged by diversified procurement methods and lower funding costs.

 

Stagnant Exports from Japan

Global export transactions gradually increased from 2011 to 2014, reaching $18.9 trillion. However, 2015 saw a 13.2% year-on-year decrease to $16.4 trillion, due to a decline in Chinese demand and weak natural resource prices.

From 2012 to 2015, Japan's export transactions gradually declined in dollar terms, despite the continued yen depreciation, falling 9.4% year-on-year to $624.9 billion (Figure 3). According to the UN Conference on Trade and Development (UNCTAD), Japan's sluggish exports can be attributed to external factors such as a slowdown in global trade growth, but also to the internal factors such as Japanese companies' establishment of local production structures in a bid to tap growth overseas, which resulted in a steady, successful development of Japanese supply chain systems abroad.

 

Boosting Overseas Business for Mid-tier Enterprises and SME

A growing number of mid-tier enterprises and SME are trying to create new business opportunities, both by capturing demand in overseas markets and meeting local procurement needs of major Japanese companies that have launched operations in emerging-markets seeing economic growth, particularly in Asia.

According to the FY2015 Survey Report on Overseas Business Operations by Japanese Manufacturing Companies, the 27th such study, companies that intended to "strengthen/expand" overseas operations over the medium-term declined slightly to 80.5%. On the other hand, the number of mid-tier enterprises and SME with the same response has steadily risen since 2012 and is now at 75.2% (Figure 4).

Diversification has been seen in the mid-tier enterprises and SME willing to take on the challenge of going overseas, the countries they target, and their funding needs. Nevertheless, the two types of tier enterprises tend to face greater constraints than larger companies on various fronts, such as fund procurement and information gathering for the operation of overseas businesses. It is, therefore, incumbent on us to further enhance the support provided to these companies.

 

JBIC's Activities

Supporting Overseas Business Expansion using Various Instruments

JBIC signed an MOU to strengthen its relationship with Japanese company and leading local company to invest in a petrochemicals business.

JBIC supports the overseas M&A activities of Japanese companies, overseas infrastructure, and natural resource-related projects. In particular, JBIC's Industry Finance Group provides a flexible form of long-term funding required for the M&A activities of Japanese companies targeting overseas companies in various fields, including the food, beverages, human resource dispatch, finance, chemical, iron casting, media, and IT industries.

Furthermore, JBIC provided project financing for a long-term, floating production, storage, and offloading (FPSO) system chartering service project to develop oil fields, and a loan for a satellite communications project in which a Japanese company was participating; and also helped Japanese companies procure funds in the currency of the countries in which they operate. This includes Mexican peso-denominated and Indian rupeedenominated loans, the latter being a first for JBIC.

JBIC made a capital contribution to a fund that targets investments in growing, unlisted Chinese companies and companies in Asian countries. It also provided support from the early stages for a Japanese company that, after having split off from, and become independent of a Japanese investment fund, set up a joint venture with a leading Taiwanese company to develop its petrochemicals business in Taiwan.

Supporting Japanese Exports, Overseas Businesses

Export financing is used for offshore support vessels built by Japanese companies.

JBIC is committed to supporting exports and overseas sales by Japanese companies. During FY2015, JBIC supported Japanese companies as they sought to increase their exports of fertilizer and other plants by approaching buyers, such as the governments of host countries, with finance-related proposals to cover projects from the early stage, conducting direct negotiations and structuring project finance.

JBIC also maintains relationships with many mid-tier enterprises and SME, and supports the Japanese shipbuilding industry by offering flexible funding in the form of buyer's credit to support the export of bulk carriers, offshore support vessels, and other ships made by Japanese shipbuilding companies which contribute significantly to regional economies.

Supporting Overseas Business Deployment of Mid-tier Enterprises and SME

The MOU with Mexican states will support Japanese mid-tier enterprises and SME.

Since FY2012, JBIC has been working more aggressively to support the overseas business deployment of mid-tier enterprises and SME through business units dedicated to this purpose at its Head Office and West Japan Office. JBIC made 34 commitments to such companies during FY2012 and sharply higher 133 commitments during FY2015.

To facilitate the support of mid-tier enterprises and SME, JBIC has strengthened cooperation with Japanese regional financial institutions and overseas subsidiaries of lease companies by establishing investment credit lines (financing facilities) through private financial institutions. JBIC also sought to complement private financing by providing, in addition to seamless funding in the form of loans denominated in hard currencies (U.S. dollars and euros), loans denominated in other currencies — such as the Thai baht, Indonesian rupiah, and Mexican peso — in order to meet the needs of overseas subsidiaries for funds in local currencies.

Furthermore, in FY2015, JBIC signed MOU with four Mexican state governments and a Mexican financial institution, respectively. This was intended to further develop the framework, "Development and Strengthening of Support System by Financial Institutions for Small and Medium Enterprises' Entry into Asia through Coordination among Japanese Regional Financial Institutions, Japan Bank for International Cooperation (JBIC) and the Japan External Trade Organization (JETRO)." This framework was announced by a joint press release issued in December 2010 by the Financial Services Agency, the Ministry of Finance, and the Ministry of Economy, Trade and Industry. JBIC will support Japanese mid-tier enterprises and SME expanding into Mexico by actively utilizing Japan desks (desks providing services exclusively for Japanese companies) set up by Mexican state governments and a Mexican financial institution as agreed on the MOU.

JBIC has also held seminars and consultations across Japan to provide information on the foreign investment environment for mid-tier enterprises and SME seeking to expand their businesses abroad. The events have been conducted by members of staff from JBIC Head Office and the West Japan Office, as well as overseas representatives.

Meeting the needs of Japanese companies

Japanese companies continue to confront ever-changing economic conditions, such as the economic slowdown in China and anemic global trade growth. However, guided by the policies of the Japanese government, JBIC continues to provide support aimed at maintaining and improving the international competitiveness of Japanese industries.

JBIC's financing options — including project finance, subordinated loans, and loans denominated in local currencies — are set to further diversify following the May 2016 enactment of the Act for Partial Amendment of the Japan Bank for International Cooperation.

Through the Industry Finance Group, JBIC will utilize these financing instruments to deepen its support for Japanese companies and, in order to contribute to the exploration and creation of new business opportunities that lead to sustainable growth for Japan, connect Japan to the world by accurately responding to the true needs of Japanese companies.