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Sparx Surges on Winning Local Government Mandate: Tokyo Mover

Sparx Group CEO Shuhei Abe
Shuhei Abe, president and chief executive officer of Sparx Group Co. Ltd. Photographer: Dale de la Rey/Bloomberg

Sparx Group Co., a Japanese asset manager, had its biggest gain in almost two years in Tokyo trading, after winning a contract from the Tokyo Metropolitan Government to start an infrastructure fund that will invest in the nation’s renewable energy industry.

Sparx jumped 18 percent to 6,680 yen at the close of trading on the Jasdaq stock exchange. The stock surged by the daily exchange-imposed limit, and completed its biggest gain since July 22, 2010. The stock is up 25 percent this year, more than three times the 7 percent gain in the Jasdaq index.

The mandate by the Tokyo government comes as Chief Executive Officer Shuhei Abe tries to bring his company back to profitability by widening its offerings beyond equity-related products. Sparx has been running a fund that invests in companies in the smart-grid and renewable-energy technology industries amid Japan’s efforts to cut dependence on atomic energy that provided about 30 percent of the nation’s power before the Fukushima nuclear meltdown in March 2011.

“Sparx is one of the few asset managers that have the expertise in the area, so the Tokyo government must have chosen them for that experience,” said Yugo Nakamura, an analyst for Bloomberg New Energy Finance in Tokyo.

Japan’s First

The Tokyo government sought companies able to manage a public-private infrastructure fund dedicated to investing in the country’s power-supply business, the nation’s first such fund, according to Abe. Sparx’s infrastructure fund will start with initial capital of 1.5 billion yen ($19 million) from the government as early as October and will expand to about 20 billion yen, Abe said.

Sparx’s existing smart-grid fund, with more than 20 billion yen in assets, has declined 4.2 percent since July 2010 through the end of May, outperforming the 14 percent drop by the benchmark Topix index in the same period, according to the company.

The new infrastructure fund will mainly invest in projects including mega-solar and wind-power plants in Japan, and may also invest as much as 15 percent of assets in shares of smart-grid technology companies, Abe said. It will target an annual return of 6 percent to 8 percent, while it will last about 15 years, he said. Sparx plans to raise capital for the fund from domestic and overseas pensions, individual investors as well as sovereign wealth funds around the world, Abe said.

Feed-in-Tariff Introduction

The Tokyo city fund will focus on the Tokyo metropolitan area for investments, while it will seek opportunities across Japan as well in alternative energy providers such as those in the solar-power industry and wind-power generators, Abe said.

Sparx posted a net loss of 4.54 billion yen for last fiscal year, compared with a 3.7 billion yen loss a year earlier, even after it cut salaries and relocated to less expensive offices in Tokyo.

The so-called feed-in-tariff will be introduced on July 1 after Japan’s government in April recommended solar power providers earn 42 yen a kilowatt-hour for the electricity they produce, three times the 13.65 yen charged to industrial and commercial users. The preferential rate for commercial and utility-scale solar power lasts for 20 years.

To replace one nuclear plant in Japan, about 2 trillion yen of capital is needed, according to Abe. All of Japan’s 50 reactors were taken offline for safety checks after the meltdowns at Tepco’s Fukushima Dai-Ichi reactors last year, with only two near the western city of Osaka given permission to resume operations since.

“This is going to be a big push for the expansion of our fund business,” Abe said. “The renewable energy industry is lacking capital it needs to contribute to securing sustainable energy in Japan and we want to be the initial risk taker in providing the financing.”

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