Japan's Big Banks Step Up Foreign M&A Lending

TOKYO—Faced with sluggish domestic growth, Japan's megabanks are expanding their role in financing global mergers and acquisitions, which hit a record level this year.

Japanese banks have long ranked among the world's top cross-border lenders, and have lent many billions of dollars to Japanese companies also seeking growth abroad through acquisitions. Now the banks are increasingly financing deals that don't involve their compatriot companies.

Banks in Japan have had a hand in 59% of global M&A loan packages this year, up from 46% last year and a longtime high, according to data provider Dealogic. That means they have contributed at least a piece of $473 billion worth of global M&A financing such as syndicated loans, the data show.

Japanese lenders have helped finance some of the year's biggest deals. They included Anheuser-Busch InBev's $104 billion acquisition of SABMiller, announced in October. The country's top three banks—Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group and Sumitomo Mitsui Financial Group—said they provided about $4 billion each to a $75 billion loan package for that deal.

That represents only a fraction of the big three's total overseas lending. The balance of Mitsubishi UFJ's overseas lending totaled ¥ 42.4 trillion ($352 billion) as of Sept. 30, while Mizuho's was ¥ 22.6 trillion and SMFG's was ¥ 20.5 trillion. The banks don't disclose the exact amounts of their contributions to M&A loan packages.

Still, efforts to ramp up overseas M&A lending are a positive for Japanese banks, said Akira Takai, an analyst at Daiwa Securities, who noted that the money is mostly going to blue-chip companies with higher investment grades.

"As dollar funding costs rise, financing for deals is more profitable than normal lending," he said.

With its financial strength, Mitsubishi UFJ, Japan's largest bank by assets, sees an opportunity to move well beyond financing acquisitions by Japanese companies, said Makoto Kobayashi, head of the banking unit's financial solutions group.

"We've seen increasing number of financing deals for non-Japanese M&A activities this year and I feel our presence has been more recognized," Mr. Kobayashi said.

The bank's alliance with Morgan Stanley has helped it expand its role in global deal financing, Mr. Kobayashi said. The Japanese bank took a 20% stake in Morgan Stanley in 2008, and the two have joint ventures in Japan.

"In global deals that Morgan Stanley advises, we get financing even if they [the companies] are not Japan-related," he said.

M&A financing on a global scale presents some challenges for banks more accustomed to working with well-known partners.

Takahiko Yasuhara, general manager of the international coordination division at Mizuho Financial Group, said Mizuho works to get to know the biggest companies in regions around the world so it won't be caught by flat-footed if a deal is struck.

"We are often asked by an acquiring company to provide financing for an upcoming deal Friday and to get back to them with a yes or no over the weekend. So to make a quick decision, we have to build close relationships with such companies," he said.

Mizuho contributed to $34 billion in financing toward Teva Pharmaceutical Industries' $40.5 billion acquisition of Allergan's generic drugs businesses announced in July.

SMFG President Koichi Miyata said he tries to meet a top executive at a major company whenever he goes on a business trip abroad. "Financing deals is about whether you can maintain relationships with a business client…so I'm trying to reach out to contacts during my business trips in Asia, the U.S. and Europe," Mr. Miyata said.

Despite having ample cash on hand, Japanese bankers acknowledge that they could also face a challenge raising U.S. dollars for overseas lending as interest rates rise following the U.S. Federal Reserve's rate increase this month.

Mr. Miyata said SMFG would use dollar deposits and the commercial-paper market, while trying to build dollar holdings by issuing dollar corporate bonds and converting yen.

Write to Atsuko Fukase at [e-mail]

(END) Dow Jones Newswires

December 29, 2015 08:05 ET (13:05 GMT)

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