Investment

Mizuho to deploy billions of riskier finance to help Japanese companies cope with viral fallout

Mizuho Financial Group Inc. is poised to deploy “multi-billion dollar” riskier financing to companies that need more capital to deal with the fallout from the coronavirus outbreak, its chief executive said.

Japan’s third-largest bank is in talks with corporate clients to provide financing through subordinated loans and preferred share purchases totaling more than 100 billion yen ($ 930 million), and is poised to provide several times more, a said General Manager Tatsufumi Sakai.

Such transactions are a key area of ​​growth for Mizuho, ​​which has grown its mezzanine and equity finance business to offset declining profitability on regular loans at a time of low domestic interest rates. The pandemic is likely to fuel demand for such financing from struggling companies that need to strengthen their balance sheets, Sakai said.

“The economic situation is worse than it was during the collapse of Lehman Brothers,” he said, referring to the global financial crisis of 2008. “I have no doubt that is fine. get worse in the future. “

For lenders, subordinated credit and preferred stocks are riskier than senior loans because they have less chance of getting the money back in the event of default. For borrowers, they can count for capital, helping them maintain or improve their credit rating.

Even companies that have suffered limited damage from the coronavirus-fueled recession are likely to seek this type of funding, according to Sakai, 60. Some may use it to seize acquisition opportunities resulting from sharp declines in asset values, while others may need funds to revamp their global supply chains, he said.

Mizuho has also responded to an increase in demand for conventional loans in the wake of the pandemic. Sakai said the bank received requests for loans and other forms of financing totaling about 17 trillion yen, including 4 trillion yen from overseas, and provided 10,000 trillion yen. .

Mizuho is not disclosing figures for its ongoing mezzanine and equity financing, but had planned to increase the balance from 170 billion yen to 1.45 trillion yen in the year ended in March. The head of the banking unit, Koji Fujiwara, pointed out the potential to increase the total in an interview in October.

Sakai said the bank would use the freed up money by selling cross-stakes – usually passive stakes in companies. Mizuho reduced those holdings by 147.8 billion yen in the previous fiscal year and plans to unload a similar amount by March 2022, a presentation said last month.

Such funding tends to have better returns for lenders to reflect greater risk, and Sakai said it would give the bank better access to clients’ strategic decision-making than cross-holdings.

“Taking a stake is our angle, in addition to providing senior loans or taking out bonds,” he said. “Instead of being a silent shareholder, we would like to engage in active discussions. “

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