Shinsei Bank to Quadruple Project Financing Loans in Three Years

Shinsei Bank Ltd. plans to increase project financing fourfold in the next three years to take advantage of higher spreads for infrastructure loans and reduce reliance on regular corporate lending amid rising competition.

Outstanding loans for projects will climb to as much as 200 billion yen ($2.1 billion) in the year to March 2016, from about 50 billion yen last fiscal period, said Tsukasa Makizumi, a general manager at the bank’s specialty finance division in Tokyo. The lender will expand its 30-person specialty finance division to about 40 people over that time to meet the goals, Makizumi said.

Shinsei Bank in March a mid-term business plan calling for an increase in specialty lending, which includes loans for LBOs, cross-border acquisitions and development projects, to 400 billion yen in three years, from 215 billion yen last fiscal year. Project financing is a method of funding whereby debt repayments are sourced primarily from the forecast cash flows of a venture and security is limited to its assets.

Shinsei, partially owned by J. Christopher Flowers, chief executive officer of U.S. private-equity firm J.C. Flowers & Co., joins domestic regional banks in focusing on higher-yielding infrastructure loans as interest rates hover near record lows. The Bank of Japan’s unprecedented doubling of bond purchases left the country’s lenders with a record 185 trillion yen in excess cash in May, BOJ data show.

Higher Margins

Project finance loans can command spreads of some 200 basis points more than the London interbank offered rate, according to Makizumi. That’s about 2.27 percent based on three-month Libor yesterday and compares with the 0.98 percent average on new long-term loans by domestic banks in April, according to data compiled by Bloomberg.

The financing will account for as much as half of the bank’s specialty lending, compared with less than a quarter now, according to Makizumi. LBO funding operations, which accounted for about 80 percent of the division’s 215 billion yen balance as of March 31, have seen “more deals with difficult terms,” he said.

Since opening its project finance office a year ago, the bank has arranged loans to solar projects in Hokkaido and Ibaraki, north of Tokyo, and has provided financing for a gas-fired plant in Chiba. With lending for alternative energy projects in Japan typically less than 10 billion yen per transaction, Shinsei plans to widen its focus to overseas projects.

The bank was part of a group of lenders that provided $20 billion to Inpex Corp. last year to finance the Ichthys liquefied natural gas project in western Australia. Shinsei also took part in the financing for Idemitsu Kosan Co.’s Nghi Son refinery in Vietnam, Makizumi said.

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