HSBC Japan Unit to Boost State-Backed Project Finance Lending on Fee Hunt

HSBC Holdings Plc’s Japanese banking unit plans to increase financing for state-backed projects as profitability in domestic corporate lending declines.

Funding for projects guaranteed by the Japan Bank for International Cooperation and Nippon Export and Investment Insurance “pay a margin of between 100 and 200 basis points more than the London interbank offered rate,” Takashi Omura, director of project and export finance for HSBC in Japan, said in an interview. That’s more lucrative than offering syndicated loans in Japan, he said.

HSBC is working on two transactions in the first half, according to Omura who declined to provide more details. The London-based bank helped arrange $13 billion of loans last year for projects backed by the state lender known as JBIC and Nippon Export, or NEXI, according to data compiled by Bloomberg.

Japan is backing the overseas expansion of domestic firms as the yen’s advance dents exporters’ earnings and competitiveness, threatening the nation’s export-led economy. The currency was the best performer against the dollar among the Group of Ten major industrialized nations last year after rising 13.6 percent.

Bank lending shrank 1.8 percent in November, the 12th monthly decline, as companies delay expansion plans, Bank of Japan data show.

The two state-run agencies provide guarantees for loans funding overseas projects involving Japanese firms, and lend to domestic firms to encourage investment outside Japan. Between 90 percent and 95 percent of such loans are protected by these organizations, and fees are higher than for domestic syndicated loans that pay a single-digit or even no margin, Omura said.

Indonesia, Egypt

Projects have included refineries in Saudi Arabia and Egypt, and an energy plant in Indonesia, according to Omura.

JGC Corp., a Japanese engineering company, joined Abengoa SA, the world’s largest developer of solar thermal plants, to develop two 50-megawatt projects in southern Spain by taking a 26 percent stake, the companies said in a statement Sept. 2.

HSBC, with Sumitomo Mitsui Banking Corp., Mizuho Corporate Bank Ltd. and BNP Paribas’s Tokyo unit, helped them raise about 353 million euros in a 20-year loan, of which 90 percent of commercial risks and all political risks are covered by NEXI, the agency’s website shows.

“The role of finance supported by government agencies is increasing globally,” Omura said. “Private institutions got weaker” after the 2008 credit crisis. Loans and guarantees from Japanese agencies are “the largest in the world.”

NEXI, JBIC

NEXI from Jan. 1 can offer full protection of syndicated loans from commercial banks and JBIC for overseas projects, the agency said Dec. 10. The same day, the government separated JBIC from Japan Finance Corp. to strengthen the lender’s role in funding corporate expansion abroad.

Japanese banks including Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. have struggled with low margins and low domestic demand for loans. Long-term prime rates charged on corporate loans fell to 1.6 percent as of Dec. 10 from 2.65 percent in July 2006, according to Mizuho Corporate Bank.

Mitsubishi Corp., Japan’s largest trading company, agreed on Dec. 27 to a 30 billion yen five-year term loan that pays interest of one basis point, or 0.01 percentage point, more than the three-month Libor rate for yen, Bloomberg data show.

HSBC aims to raise its share of project finance loans in Japan through its overseas network, Omura said. “We are not trying to compete with Japanese mega banks here,” he said. “We offer things that Japanese banks don’t.”

To contact the reporters on this story: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net Emi Urabe in Tokyo at eurabe@bloomberg.net.

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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