Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade
The biggest year for overseas buyouts by Japan’s companies since at least 2000 was financed without a single yen coming from a $130 billion program Prime Minister Yoshihiko Noda set up to spur such deals.
While “multiple” companies are weighing participation in the 10 trillion-yen fund, none have signed up, Kenji Okamura, director of the finance ministry’s development-policy division, said in an interview in Tokyo. He said it was too early to judge the initiative, which ends in eight months. Japanese companies spent $88.7 billion in overseas acquisitions last year, a record in data compiled by Bloomberg that go back 12 years.
Businesses may be bypassing the money even as purchases boom because of growing cash stockpiles and the need to move more quickly than a government process would allow. The lack of demand for the program unveiled in August underscores how difficult it is for Noda to go beyond the more traditional means of intervening in currency markets to support companies as the yen hovers near its postwar high of 75.35 per dollar.
“Japan is still in need of a quick remedy like intervention to erase the yen’s gains,” said Junko Nishioka, chief Japan economist in Tokyo at RBS Securities Japan Ltd. and a former Bank of Japan official. “There’s a chance Japan will intervene again. Companies have little incentive to increase capital spending and expand at home.”
Under the program, the state-run Japan Bank for International Cooperation disperses funds from the country’s foreign-exchange reserves. Authorities’ attempts to intervene to weaken the currency have failed to curb the yen’s 8 percent climb against the dollar in the past 12 months.
Companies in the Topix Index have 97.8 trillion yen of cash, up from 79.5 trillion yen three years ago, according to data compiled by Bloomberg. Takeda Pharmaceutical Co. (4502) bought Swiss drug-maker Nycomed last year for 9.6 billion euros in cash, the largest overseas acquisition made by a Japanese company that year. Toshiba Corp., Japan’s largest maker of nuclear reactors, bolstered its stake in Westinghouse Electric for $1.6 billion.
Companies that completed deals after the program was announced said they didn’t want to use a facility they were unfamiliar with. Kirin Holdings Co. (2503), Japan’s largest brewer by market value, in November took full control of Brazilian beer maker Schincariol Participacoes e Representacoes by signing a bridge loan for about 100 billion yen from the Bank of Mitsubishi UFJ Ltd. to help finance the $1.35 billion purchase.
“We weren’t sure how to how to use it,” Kan Yamamoto, a Kirin spokesman, said when asked why his company didn’t tap the program. “We understand the outline of the facility, but we have little know-how without the existence of actual cases.”
The JBIC program offers loans at the six-month Libor rate, which at around 0.34 percent is lower than financing that companies could get with private financial institutions.
Libor, a benchmark for about $360 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. The lenders are asked how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After a predetermined number of quotes are excluded, those remaining are averaged and published for each currency by the BBA before noon.
The loan rates Japanese banks charge have been declining as a global slowdown weighs on corporate demand. New loan rates fell 17.5 basis points in November to 1.019 percent, the lowest since the BOJ started tracking data in October 1993.
“Cash-rich companies can finance mid-sized transactions by themselves, utilizing bank loans,” said Kensaku Bessho, managing director of M&A advisory group Mitsubishi UFJ Morgan Stanley in Tokyo. “Utilizing governmental financing may require some sort of lengthy application process, which would be relatively cumbersome for companies in comparison with a commercial bank loan.”
Besides mergers and acquisitions, the JBIC program supports exports of small and medium-sized companies and securing energy resources, an area where it’s seen more interest. JBIC has so far made three loans worth about $835 million to companies involved with liquefied natural gas projects in Australia and Papua New Guinea.
Meantime, large businesses press for currency intervention, on top of the record sales of yen the Noda administration oversaw last year to stem appreciation. The yen traded at 77.20 per dollar at 9:11 a.m. in London.
“The facility may have a slight effect,” said Takehiko Seike, economic policy bureau manager at Keidanren in Tokyo. Seike said that Keidanren still hopes the government will intervene when necessary, and that it has no position on other measures that could tame the yen’s rise. Members including Nissan Motor (7201) Corp. and Panasonic Corp. (6752) have announced plans to shift operations abroad as the currency soared.
Former BOJ Deputy Governor Kazumasa Iwata in October suggested that the central bank establish a 50 trillion yen fund to purchase foreign debt to help weaken the yen. Iwata, who was at the central bank from 2003-2008, also advised the government in November to promote Samurai bonds, or debt securities sold in Japan by foreign governments or companies.
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