IFR Asia - 08.09.2018

Japan Inc ramps up ESG loans

„ Loans Green and socially responsible financings catching on in Japan

BY WAKAKO SATO

Japan is starting to see an

upturn in demand for socially

responsible lending, as Asia’s

biggest loan market catches up

with a rising global awareness

of environmental, social and

governance (ESG) issues.

Socially responsible lending

includes loans linked to ESG or

sustainable development goal

(SDG) assessments as well as

Green loans, which restrict the

use of proceeds.

SUMITOMO CHEMICAL, which

produces a range of

environmentally friendly

products, is currently in the

market with Japan’s first ESG-

linked loan, and two Japanese

real estate investment trusts

have recently completed Green

loans.

“We’re getting an increasing

number of queries about ESG

investment as Japan catches

up with recent global trends,”

said Takayuki Fukuyoshi, vice-

president of the sustainability

planning and support

department at Development

Bank of Japan.

DBJ began issuing

environmental ratings for

Japanese borrowers as long

ago as 2004 and has certified

¥1.303trn (US$11.7bn) of loans

in the last 14 years. The loans

give borrowers preferential

interest margins based on the

environmental ratings.

The recent surge in interest

follows the establishment

of Japan’s version of the

stewardship and corporate

governance codes in 2014 and

the signing of the Principles

for Responsible Investment by

the world’s largest institutional

investor – Japan’s Government

Pension Investment Fund – in

2015, Fukuyoshi said.

“ESG investment is also a

global trend for lenders, so

I believe banks’ efforts like

this have a positive impact on

investor relations,” said Akimasa

Yamashita, Mizuho’s manager of

real estate finance department.

GREEN LOANS

Asia’s first socially responsible

loans were signed in March,

shortly after the London-based

Loan Market Association and

the Asia Pacific Loan Market

Association established Green

loan principles.

Singapore-listed Olam

International completed a

US$500m sustainability-linked

revolving credit facility, while

Hong Kong’s New World

Development obtained a

HK$3.6bn (US$459m) Green

loan.

Japan’s fledgling Green loan

market is centred around the

REIT sector, where a handful

of completed deals have raised

awareness.

“I don’t think Green loans

are widely recognised yet (in

Japan), but I think that will

gradually change as we’ve

been receiving many inquiries

from REITs and corporate

borrowers,” Yamashita said.

Mizuho Bank completed a

¥2bn Green bilateral loan for

GM to ignite Kangaroo market

„ Bonds: Car giant looks to reopen Australian market for corporate America

BY JOHN WEAVERS

Australia’s corporate bond

market may be poised to shift

into higher gear with General

Motors preparing to market a

potential new issue that would

end a 13-month drought of

Australian dollar issuance from

US companies.

GENERAL MOTORS FINANCIAL (Baa3/

BBB/BBB), the wholly owned

captive finance subsidiary of

GM, has mandated Deutsche Bank

and Westpac to arrange fixed

income meetings in Australia

and Singapore commencing

September 17.

The carmaker’s first

Kangaroo benchmark would

be the first major Aussie dollar

issue from the US corporate

sector since the passage of US

tax reform last December.

By slashing the tax rate on

repatriated profits from 35%

to around 15% and cutting the

standard corporate tax rate

to 21% from 35%, the reform

removed a major driver behind

the run of US corporate bond

issues in Australia.

To avoid high tax rates on

repatriated overseas profits, US

firms had been incentivised to

keep profits offshore, instead

issuing bonds in foreign

currencies and swapping the

proceeds back to US dollars to

help pay dividends and finance

stock buybacks.

Apple’s groundbreaking

A$2.25bn (US$1.6bn) four-year

and seven-year debut in August

2015 established the Aussie

market as a global alternative.

A second Apple Kangaroo and

debuts from Intel, Coca-Cola,

Verizon and AB InBev (through

its Australian subsidiary) raised

a combined A$7.4bn over the

following two years, the last

trade being in August 2017.

The tax changes called into

question this strategy, with

Apple, for example, promptly

announcing it would make

about US$38bn in one-time tax

payments on its overseas cash.

After a 13-month US hiatus,

a benchmark from GM would

underline the appeal of the

Australian dollar as a funding

currency for some of the

world’s biggest corporate

issuers.

Even under the new US tax

regime, American companies

derive diversification benefits

from Kangaroo issuance,

especially when achievable

volume and pricing levels stack

up, which they seemingly do at

present.

News

“GM can take advantage of the strong bid

for short-term paper, perhaps to fund local

operations, while the flat and elevated cross-

currency basis swap curve means you can raise

funds in Aussie dollars and swap them back into

US dollars at significantly better levels than were

available a few months ago.”

“I don’t think Green loans are widely recognised

yet (in Japan), but I think that will gradually

change as we’ve been receiving many inquiries

from REITs and corporate borrowers.”