Goldman Arranges Solar Bonds With Yield Around 1%: Japan Credit

Goldman Sachs Group Inc. is arranging bonds to fund solar projects in Japan at cheaper rates than the cost to get similar loans from banks.

The U.S. lender is structuring the notes for an affiliate and other renewable energy companies including Japan Asia Group Ltd., a solar-project developer that owns a combined 33 megawatts of capacity at home and in Europe. JAG has sold about 6 billion yen ($56 million) of bonds that pay for facilities including two plants on the southern island of Kyushu. Notes backed by three projects carry an A grade from Rating & Investment Information Inc., the company said July 16.

“With a lack of corporate and electric utility bonds, there is a lot of demand for long-term bonds with an A rating,” said Toshihiro Hiraoka, in charge of funding for the projects at the Tokyo-based JAG Energy Co. Japan Asia Group can sell notes with interest at the “1 percent level,” while non-recourse loans carry a rate of 2 percent to 3 percent, he said.

Those borrowing costs are far lower than the 6.4 percent average coupon on global renewable energy bonds, data compiled by Bloomberg show, which may help Prime Minister Shinzo Abe achieve his goal of developing alternative energy to fill the gap left by atomic power closed after the Fukushima disaster in 2011. Investors are starved of debt as corporate note sales in Japan fell 12 percent in 2014, including lower issuance from nuclear utilities.

Goldman Unit

Japan Renewable Energy Co., an affiliate of Goldman Sachs set up in 2012 to develop sun and wind energy plants, is also using project bonds. A facility located in a region adjacent to Fukushima in northeastern Japan issued 735 million yen of 20-year notes last month with an A score from Japan Credit Rating Agency Ltd.

Japan Asia Group has also raised funds from the sale of project bonds rated BBB from JCR, two grades above the equivalent of non-investment level.

While banks have traditionally lent money to infrastructure projects in Japan, it makes sense for insurers and pension funds to finance the deals because of the long time-frame, according to Toru Inoue, vice president at Goldman Sachs’s Infrastructure & Structured Financing Group in Tokyo.

“Capital put into infrastructure is recouped over the long term and the income is extremely stable so it’s more appropriate to get long-term, fixed financing,” Inoue said in an interview.

Guarantee Needed

JAG’s Hiraoka said while his company had approached the nation’s biggest banks for non-recourse loans on a number of projects, it received no offers of funding without some form of corporate guarantee.

The company plans to make bond funding “the main focus” of financing for solar deals because of the low cost, he said. It may also consider non-recourse loans if rates become more favorable in the future, Hiraoka said.

JAG owns 6.1 megawatts of capacity in solar facilities overseas in countries such as Germany and Spain, according to its statement in May. In Japan, the company has about 27 megawatts of capacity in operation and plans for at least another 117 megawatts, a document in August showed.

Only about 7 percent of more than 1,000 solar deals in Japan used project financing instead of commercial loans and other fundraising methods, according to a Bloomberg New Energy Finance survey of local financial institutions published in May.

Deutsche Bank

Deutsche Bank AG said in July it plans to lend about $1 billion for Japan solar projects. The Frankfurt-based firm agreed in June to provide an 11.1 billion yen non-recourse loan for a facility on a former golf course north of Tokyo to be operated by a unit of Spain’s Gestamp Renewables Corp.

Bond yields in Japan have tumbled as the central bank buys about 7 trillion yen of sovereign notes a month to overcome deflation. The 10-year benchmark rate has dropped 16 1/2 basis points this year to 0.57 percent. The average yield on Japanese corporate notes was 0.38 percent, one basis point from the lowest since June 2003, according to Bank of America Merrill Lynch index data. A basis point is 0.01 percentage point. The yen was at 107.18 per dollar as of 4:10 p.m. in Tokyo.

Japanese companies have been slow to boost bond sales because of their large cash holdings. Non-financial companies on the Topix index have 68.5 trillion yen in cash, more than the annual economic output of Argentina, according to data compiled by Bloomberg.

Bond Offerings

Corporate bond sales in Japan have fallen 12 percent to 5.95 trillion yen so far this year, with electrical power companies reducing issuance by 21 percent to 580 billion yen, Bloomberg-compiled data show.

As investors look for new assets to boost returns, the Tokyo Stock Exchange plans to start an infrastructure fund market by March. The first listing is expected by the end of next year. The exchange’s move follows countries such as South Korea and Australia, where funds investing in infrastructure including airports and railways are listed, according to a 2013 report by the TSE.

“There is increasing interest globally in infrastructure to diversify assets,” Masayuki Yokota, the director in charge of product development for new listings for the exchange, said in an e-mail on Aug. 25. “We are getting many inquiries about funds that invest in renewable energy, especially solar power stations.”

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