The Industry Finance Group is composed of four departments and branches namely the Corporate Finance Department, Finance Office for SMEs, Marine and Aviation Finance Department and Osaka Branch. The Industry Finance Group makes efforts to maintain and increase the international competitiveness of Japanese industries by capitalizing on its various financial instruments for financing projects overseas.
The year 2019 will witness concerns over the impact on the global economy of the trade issues that have continued since the latter half of 2018 and economic developments in emerging countries. Under JBIC's Third Medium-term Business Plan (FY2018- 2020), the Industry Finance Group will continue to actively support Japanese companies, including mid-tier enterprises and small and medium-sized enterprises (SMEs) in expanding overseas, and to maintain and increase the international competitiveness of Japanese industries. In order to achieve these objectives, we will take the following actions: i) take strategic action to promote innovation, ii) support Japanese companies in expand into frontier markets, iii) support overseas M&As and iv) enhance its risk-taking capability for financing various projects.
Managing Executive Officer
Global Head of Industry Finance Group
Business Environment and Key Challenges
Overseas Business Deployment of Various Industries
Despite the slowdown sparked by the global financial crisis in 2008, foreign direct investment by Japanese companies returned to a level exceeding $100 billion in 2011. Thereafter, it remained firm, reaching $159.1 billion in 2018 (Figure 1).
Foreign direct investment by Japanese companies, which remains stable, particularly overseas M&A activity has grown rapidly since 2009 thanks to a stronger yen. This trend continues despite subsequent currency movements, pushing up the number of M&A deals from 672 in 2017 to 777 in 2018. In recent years, Japanese companies have proactively conducted overseas M&As to acquire technologies to survive in international competition as well as develop new markets replacing the shrinking domestic markets. This indicates that the use of M&A continues to be an important strategy for Japanese companies to expand abroad.
Looking at the value of the M&A deals, the value of M&A deals in 2017 fell below ¥8 trillion, decreasing from the levels of 2015 and 2016 when values exceeded ¥10 trillion buoyed by large-scale M&A transactions. Nonetheless, in 2018 there was the largest-ever M&A deal by a Japanese company, pushing up the value of M&A deals to around ¥19 trillion, an increase of 2.5 times compared to 2017 (Figure 2).
In order to put the Japanese economy back on a growth trajectory amid structural issues such as a shrinking population and an aging society with a falling birthrate and to create a much more affluent society, it is indispensable to increase the productivity of the entire economy and strengthen earning power. To this end, it is increasingly necessary to proactively encourage Japanese companies to enter overseas markets for seeking new business opportunities.
Value of Japan's Exports in a Recovery Trend
The value of global export transactions rebounded in 2017, the first positive growth in three years, thanks to accelerating growth of the world economy and soaring resource prices. In 2018, global exports decelerated towards the second half of the year, impacted by trade problems, such as U.S.-China trade frictions, and a slowdown of emerging country economies. Despite this, favorable growth in the global exports that had continued from 2017 until the middle of 2018, helped to raise the value of the exports to $19.4 trillion in 2018, up from $16.0 trillion in 2016 and $17.7 trillion in 2017, marking the second consecutive year of increase.
The value of Japan's export transactions also remained firm towards the middle of 2018 on the back of increased demand for automobile-related goods in developed countries and for information-related products in Asian emerging countries. Subsequently, however, growth in export moderated in the latter half of the year due to a lull in demand for electronic components for smartphones and a slowing global economy. Despite this, the value of Japan's export transactions in 2018 rose to $738.4 billion, the third straight years of increase (Figure 3).
A downside risk to Japan's export shares in global markets still remains due to the decelerating global economy caused by unstable factors such as trade problems, and the expanding export shares of emerging countries. Amid the diversification of overseas sales channels of Japanese companies which intend to increase their export shares in the world, evaluation of creditworthiness of importers in foreign countries and uncertainties about their business transactions are becoming major concerns for Japanese companies. To ensure that they can cope with business risk in an appropriate manner, JBIC is required to participate in projects from the early stage of the project development process and to supply funding for projects with relatively high-risk profiles by capitalizing on its various financial tools.
Overseas Business Deployment of Mid-tier Enterprises and SMEs
Japanese mid-tier enterprises and SMEs are accelerating their move to seek business opportunities outside Japan by meeting demand in overseas markets as well as responding to the needs of major Japanese manufacturers for local procurement of parts and equipment.
JBIC annually surveys Japanese manufacturers regarding their medium-term prospects for overseas operations in its survey called "Survey Report on Overseas Business Operations by Japanese Manufacturing Companies". In the FY2018 survey, 97.9% of mid-tier enterprises and SMEs which responded to the survey stated that they will "maintain present level" or "strengthen/ expand" their overseas business operations. This suggests that their willingness to conduct overseas operations remains high (Figure 4).
Diversification has been seen in the fields of business invested by Japanese mid-tier enterprises and SMEs, their investment destinations, and funding needs.
Meanwhile, compared with larger companies, mid-tier enterprises and SMEs might face greater constraints on various fronts, such as fund raising and the collection of information about overseas investment. Due to this, it is important that JBIC provides further detailed support to mid-tier enterprises and SMEs, while strengthening partnerships with regional financial institutions which serve as a major financing source for those companies.
Supporting Overseas Business Expansion Using Various Financial Instruments
FPSO vessel chartering services (same model as FPSO being financed by JBIC (photo provided by MODEC, Inc.))
In the Third Medium-term Business Plan (FY2018–2020), JBIC has designated support for the overseas M&A by Japanese companies as one of the priority areas to focus on. In FY2018, JBIC continued to flexibly provide long-term financing for Japanese companies to carry out M&A activities in various fields, including the tank terminal, pharmaceuticals, healthcare, carbon fiber composite materials, leasing, food and beverage. This funding is provided through direct financing from JBIC or indirect financing (two-step loans (TSLs)) utilizing M&A credit lines (credit facilities) established with Japanese private financial institutions.
Apart from support for M&A transactions, JBIC supported the development and operation of a mixed-use real estate project in Myanmar and provided project financing for FPSO (floating production, storage, and offloading) vessel chartering services for developing an offshore oilfield. These loans helped strengthen the international competitiveness of Japanese companies.
Additionally, JBIC provided loans in various local currencies such as the Mexican peso, the Chinese renminbi, the Russian ruble and the Indian rupee in order to further encourage Japanese companies to expand abroad.
Supporting the Exports of Japanese Companies
JBIC also actively supports the exports of Japanese companies. In FY2018, JBIC provided a buyer's credit to an Indonesian company to purchase a whole set of polyethylene manufacturing plant facilities from a Japanese company. Indonesia faces increasing demand for petrochemical products due to high economic growth. Through this support, JBIC contributes to maintaining and increasing the international competitiveness of Japanese industry in Indonesia's petrochemicals sector.
As for the export of ships, JBIC contributed to maintaining and increasing the international competitiveness of Japan's shipbuilding sector by supporting the export of ships manufactured by Japanese shipbuilders. This also plays a significant role in the development of the Japanese regional economy where mid-tier enterprises and SMEs are engaged in manufacturing materials and components for building ships.
Supporting Overseas Business Deployment of Mid-tier Enterprises and SMEs
Since FY2012, JBIC has enhanced its capability to assist Japanese mid-tier enterprises and SMEs in expanding abroad through its business units dedicated to this purpose at its Head Office and Osaka branch. In FY2018, the number of loans, equity participations and guarantees to mid-tier enterprises and SMEs totaled 66. JBIC encouraged mid-tier enterprises and SMEs to expand to overseas markets through its loans in U.S. dollars and local currencies such as Thai baht or long-term loans in foreign currencies provided by Japanese regional financial institutions according to the credit lines (TSLs) offered by JBIC. Especially in FY2018, more than half of commitments for loans, equity participation and guarantees to mid-tier enterprises and SMEs was provided in the form of co-financing with regional financial institutions.
JBIC also proactively responded to the local currency needs of the overseas subsidiaries of Japanese mid-tier enterprises and SMEs by providing loans in local currencies such as Thai baht and Chinese renminbi in addition to U.S. dollars and euro.
Besides support in raising funds, JBIC held seminars and consultation meetings across Japan to provide various information from its overseas representative offices such as on overseas investment environment. JBIC encouraged mid-tier enterprises and SMEs to expand their sales channels by utilizing its broad network of contacts around the world, for example, providing business matching opportunities in cooperation with Japanese regional financial institutions and foreign embassies in Japan.
Meeting the Needs of Japanese Companies
The international economic conditions surrounding Japan, such as political conditions in each country and economic trend in emerging countries, are constantly changing. While responding to these changes accurately, JBIC continues to provide support to maintain and increase the international competitiveness of Japanese industries.
Capitalizing on various financial instruments, the Industry Finance Group will provide further support to Japanese companies which plan to expand overseas. We will also strive to explore and create new business opportunities for Japanese companies that can lead to Japan's sustainable growth particularly in growth areas and new fields, as defined by JBIC's Third Medium-term Business Plan (FY2018–2020), and will continue to play a role in connecting Japan to the world by enhancing its risk-taking capability to finance various projects while responding to the needs of customers in a timely and accurate manner.