Sumitomo to Seek Higher Risk in Africa, Asia to Boost Returns
Sumitomo Corp., a Japanese trading house with assets from mining to media, will pursue more power and water projects in Africa and South East Asia to boost profit in the traditionally “low-risk, low-return” business.
The company is looking to expand its portfolio of infrastructure projects in North America and the Middle East to emerging markets as profits are squeezed by rising competition, said Kohei Yamate, assistant general manager of the project and structured finance department at Sumitomo.
“Working on projects in the Middle East, in nations that have top credit ratings, naturally there the risk level is low, but so are the returns,” Yamate said in an interview in Tokyo on Feb. 14. “There are good opportunities in sub-Saharan Africa” and the company is also considering South America, he said.
The trader’s plans to expand operations in the region come at a time when Japanese banks, including Sumitomo Mitsui Financial Group Inc., are increasing their share of the project financing market to take advantage of a pull-back by European lenders. Sumitomo also expects to benefit from the participation of Japan Bank for International Cooperation, which would help secure lower financing costs and make the local governments more supportive, Yamate said.
Mitsubishi UFJ Financial Group Inc. helped to manage $9.7 billion of project financing loans in 2012, increasing its place in underwriter rankings to second from sixth, while Sumitomo Mitsui Financial Group kept the third spot with $6.94 billion, according to data compiled by Bloomberg.
Sumitomo, based in Tokyo, owns about 5,063 megawatts of capacity globally, enough to power 4.1 million U.S. homes, and provides water treatment to 2.5 million people, according to data on its website. The company said in 2011 that is plans to expand on a 600-megawatt wind project in South Africa with contracts to add gas- and coal-fired capacity in the nation.
Japan, North America and Europe accounted for 86 percent of Sumitomo’s sales last fiscal year, while the infrastructure business, which also includes telecommunications, provided 2.9 percent of the revenue and 3.8 percent of the profit, data compiled by Bloomberg show.
Sumitomo has a goal of boosting its power capacity to 6,300 megawatts, with no deadline set, the company said in December.
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