PFI Japan Project Bonds Roundtable 2017
Welcome to the Project Finance International (PFI) Japanese project bond roundtable, sponsored by Goldman Sachs. The event was held last month in the Thomson Reuters office in Tokyo and attracted an audience of 100 people.
This timely event comes as issuance of Japanese project bonds has started to grow. The Japanese domestic project finance market has been dominated by the global and regional Japanese commercial banks, and the advent of a new asset class is therefore noteworthy.
The roundtable bought together investment and commercial banks, investors, sponsors and lawyers to discuss the new market. The event was held in English and Japanese and here we present the full English transcript.
The discussion reviewed both the opportunities and challenges for Japanese project bonds. Institutional investors and smaller banks have bought into the bonds. Interestingly the larger commercial banks have been looking at project bonds at the global level and so cannot ignore them in their own domestic market.
Issuance up to now has focused on the solar sector where project sponsors receive a long-term feed-in tariff and the project risks are limited. There are still plenty of solar schemes to fund and now the focus is moving to other sectors.
Toru Inoue from Goldman Sachs said: “We hope that by proving something like this was possible, local governments, central government officials and other participants in infrastructure will be inspired to explore the project bond concept. We keep doing renewable bonds, hoping it will spill over to other asset classes.”
It will take time to develop the market. Fumihiro Honda from the Japan Credit Rating Agency said: “Looking back at the REIT market here in Japan, it took 10 years for that market to develop. There was real estate and then there was finance. It took time for the two to come together to create a new market. The same theoretically should happen with infrastructure.”
From a global sponsor prespective Kah Locke Tham from project bond issuer Canadian Solar said: “Project bonds will be a defining development in Japan, as they have been globally. The renewable energy industry will not develop to its potential in the next 10 years without project bonds so we have a vested interest in the growth of this market. We weren’t really sure what we were getting ourselves into, it felt like a leap of faith when what we were used to was negotiating with bank lenders.”
The investors on the panel welcomed the product. Akinao Nishio from Dai Ichi Life said: “We invest in loans, both inside and outside Japan, but we would like to invest in more domestic long-term infrastructure bonds.” And Shinchiro Miyawaki from Metlife said “as an investor I also see a lot of demand”.
I hope you enjoy reading the transcript as much as I did. It certainly provides a valuable insight into the sector. Many thanks to the panelists who took part.