Business Environment and Key Challenges
Expansion into Growth Areas, New Fields, and Support for Overseas M&A
The overseas expansion by Japanese companies has recently shown a notable move towards utilizing overseas M&A as a way to obtain new technologies and technical know-how to promote innovation, and to acquire and capture markets overseas.
Japanese industries are going through a major structural shift to the Fourth Industrial Revolution driven by innovation in technology such as IoT and AI. To realize the Fourth Industrial Revolution, it is important for companies to promote innovation. Under the "Action Plan of the Growth Strategy" approved by the Cabinet on July 17, 2020, a measure by the government of Japan, there are expectations particularly for the provision of new funds to start-up companies that will spur innovation and for the promotion of collaboration between existing companies and start-up companies. Looking at global markets, as evidenced by the emergence of IT platformers in the U.S. and China, competition across different industries and that for acquiring the market with new innovative technologies is expected to intensify further. Under such circumstances, Japanese industries are pushing ahead with strategic efforts such as corporate partnership and technological collaboration towards promoting innovation.
M&A activities by Japanese companies aimed at acquiring overseas markets and meeting their demand become more important because of Japan's structural issues such as a decreasing birthrate and an aging population as well as a shrinking labor force. Amid intense competition for acquiring overseas markets, overseas M&A activity is one of the important strategies adopted by Japanese companies for accelerating growth. Under such conditions, overseas M&A activities by Japanese companies in 2019 reached a record high of 826 deals. It is important to continue to supply funds in response to the needs of Japanese companies for M&A.
While appropriately focusing on major changes in the environment such as the rebuilding of supply chains and the shift to online and remote social activities due to the spread of COVID-19, JBIC will support Japanese companies in conducting M&A activities in growth areas, new fields, in the form of equity participation as well as fund investment through JBIC IG Partners.
Overview of JBIC IG Partners (JBIC IG)
JBIC IG is an investment advisory firm established in June 2017, by JBIC and Industrial Growth Platform, Inc. (IGPI). JBIC IG applies the respective strengths of JBIC and IGPI as follows: JBIC has knowledge and experience of financing international projects as Japan's policy-based financial institution; IGPI has the knowledge of investment business and broad experience in providing companies with hands-on support for long-term, sustainable growth in corporate and business value. JBIC IG aims to create long-term, sustainable value for Japanese investors and industries through the development of global business opportunities and a disciplined investment approach.
About JBIC IG Partners
JBIC IG Partners is an investment advisory firm established by JBIC and IGPI.
Business Model of JBIC IG
JBIC IG composes overseas funds by partnering with foreign sovereign wealth funds (SWF) and international investors, through investment advisory services to overseas funds.
As its first effort, in September 2017, JBIC IG entered into a co-investment framework agreement with the Russian Direct Investment Fund. In January 2019, JBIC IG established a venture capital fund with AS BaltCap, the largest fund manager in the Baltic region. By the end of June 2020, JBIC IG executed a total of 15 investments in these two funds. Additionally, JBIC IG is undertaking activities to bring together and promote business collaboration between investee companies in these funds and Japanese companies. JBIC IG will continue to provide added value to Japanese industry through the creation of new investment funds.
Overview of JBIC IG Partners' Investment Structure
JBIC makes equity investments in overseas companies through investment in funds that JBIC IG Partners launched in collaboration with overseas partners.
Strengthening JBIC's Capability of Equity Financing
Promoting Open Innovation by Japanese Companies
To support strategic efforts by Japanese companies to promote innovation, JBIC concluded an agreement for equity participation in Vertex Master Fund (SG) II LP (the Fund), based in Singapore to invest in venture capital funds around the world, including the U.S., China, Southeast Asia, India, and Israel. Vertex Master Fund II (GP) Pte. Ltd., which is a subsidiary of Singaporean fund manager Vertex Venture Holdings Ltd. (Vertex), has established and is managing this fund of funds.
The Fund intends to assist Japanese companies in expanding the overseas business operations by offering them business opportunities with the portfolio companies of each investee fund. The equity participation by JBIC in the Fund is expected to contribute, through the service provided by the Fund, to maintaining and strengthening the international competitiveness of Japanese companies.
Support for Building Energy Value Chain through Equity Financing
JBIC together with Osaka Gas Co., Ltd. (Osaka Gas) made a joint investment in AGP International Holdings Pte. Ltd. (AG&P) in Singapore. AG&P is an engineering and construction company founded in 1900. Since 2015, the company has been making equity investments into small- and medium-scale LNG terminals as well as in city gas distribution projects, predominantly in India, thereby making a foray into midstream and downstream businesses related to LNG. Osaka Gas intends to gain a foothold and further expanding its overseas business by participating in new LNG terminal and city gas projects in South Asia and other regions, where the company does not have a presence, and by utilizing its knowledge and experience cultivated through domestic business to promote cooperation with AG&P.
Based on the policies of the government of Japan, including the "Strategic Energy Plan" approved by the Cabinet in July 2018, it is considered that expansion of the LNG market in Asia contributes not only to the expansion of the overseas business foundation of the Japanese energy industry, but also to the securement of stable supply of LNG to Japan. The investment from Osaka Gas and JBIC will be used for midstream and downstream businesses related to LNG in South Asia and other regions, which AG&P plans to expand. As Japan's policy-based financial institution, JBIC will continue to contribute to these types of policies.
Support for ESG Investment through Equity Financing
JBIC in September 2019 made an additional investment in the Japan ASEAN Women Empowerment Fund (the Fund) investing in microfinance institutions (MFIs) in ASEAN countries and others. The Fund was launched in 2016 to support female entrepreneurs in those countries, and has supported approximately 290,000 female micro entrepreneurs by financing 30 MFIs across 7 countries. In September 2016, JBIC invested in the Fund along with Sumitomo Life Insurance Company (Sumitomo Life Insurance) and other Japanese institutional investors.
Sumitomo Life Insurance has an interest in the field of microfinance with the aim of diversifying its medium- and long-term revenue base and achieving a sustainable growth of its corporate value, and actively pursues ESG investment. Through the investment in the Fund, Sumitomo Life Insurance expects to obtain the relevant knowledge and information. Providing continued support for their strategy, the investment of JBIC in the Fund is expected to help Japanese companies maintain and increase their international competitiveness.