Abe Revives Dying Shipyards as JBIC Loans Jump 30%: Japan Credit

Apr 23, 2014 9:15 pm ET

April 24 (Bloomberg) -- For a sign of success for Prime Minister Shinzo Abe’s economic stimulus policies look no further than Japan’s once-stricken shipbuilding industry.

Japan Marine United Corp. has work scheduled for more than two years and is building two types of large bulk carriers at its Ariake shipyard that are about 20 percent more fuel efficient, spokeswoman Shoko Aoyama said. Japanese shipbuilders’ orders reached the highest level since 2007 last fiscal year, industry data show. Japan Bank for International Cooperation boosted ship loans to foreign customers by 30 percent in the period, Katsuya Mogaki, director at the bank’s marine and aerospace finance division, said in an April 16 interview.

“Overseas shippers and ship owners are coming to Japan, betting now’s the chance to buy Japanese vessels,” Mogaki said.

The yen has weakened 15 percent against the dollar since the end of 2012 after Abe took steps to end deflation, making ships manufactured by companies from Japan Marine United to Mitsui Engineering & Shipbuilding Co. more cost competitive. Japanese shipbuilders are also winning orders with fuel-saving technology, even as vessel makers worldwide struggle to recover after the global financial crisis.

Better Yields

Japan’s commercial banks are eager to lend to shippers to get better yields than domestic loans, which are at record lows because corporate demand for funds remains weak, according to Standard & Poor’s. Oslo-based DNB ASA said its margins on new ship loans range from 200 to 300 basis points over the Norway interbank offered rate. Mogaki declined to give an estimate for margins in Japan. The average commercial loan rate in Japan is an unprecedented 0.808 percent, Bank of Japan data show.

“Compared with ordinary loans to large companies in Japan, ship financing gives banks better returns that reflect risks” such as moves in exchange rates and the shipping market, Ryoji Yoshizawa, a Tokyo-based director of financial institution ratings at S&P, said by phone yesterday. “It’s pretty difficult though for the banks to accurately measure the credit risk” of overseas shippers, he said.

Mogaki said he expects overseas appetite for funds to purchase ships to remain high in 2014 after such JBIC loans increased to about 30 billion yen ($293 million) last fiscal year.

JBIC and overseas customers may sign contracts to finance purchases of at least 14 or 15 Japanese ships in the year started April 1 and the number could exceed 20 if buyers place bulk orders, Mogaki said. They used funds from the bank for 17 vessels last financial year including two Japanese ships built at an overseas site, up from 13 the previous year.

Abe Stimulus

Supporting Japanese shipbuilders is the yen’s weakening as the central bank buys about 7 trillion yen of sovereign notes a month to achieve Abe’s goal of accelerating inflation to 2 percent. The Japanese currency traded at 102.24 per dollar as of 7:05 p.m. in Tokyo yesterday, compared with 86.75 in December 2012, when Abe took office. Benchmark 10-year yields have dropped 18 1/2 basis points, or 0.185 percentage point, during the period to 0.61 percent.

“With the yen weaker than 100 per dollar and ship orders picking up, we feel spring is in the air,” Norihisa Fukuda, the general manager of Mitsui Engineering’s ship and ocean projects headquarters, said April 10 at a maritime event in Tokyo.

As recently as 2012, it was more like winter for the ship building industry in Japan.

‘2014 Problem’

Before Abe became prime minister, the companies were concerned that orders to build ships would run out by 2014, as the global supply glut caused vessel prices to plummet and the yen’s strength pushed up the price of made-in-Japan products. That was dubbed the “Year 2014 problem,” according to Mogaki.

“It was a very serious issue a year and a half ago, but concern has already faded,” JBIC’s Mogaki said.

The state lender stepped up support for the Japanese shipyards’ exports after their biggest customers Nippon Yusen K.K., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. all refrained from buying new ships during the global financial crisis. The market turmoil triggered by the collapse of Lehman Brother Holdings Inc. in 2008 caused shipping demand to plunge.

JBIC and local commercial banks increased loans to overseas companies to enable them to pay for Japanese vessels as European banks stopped financing after the crisis, Mogaki said.

The exposure of Germany’s top seven shipping lenders stood at 86 billion euros ($119 billion) in the middle of 2013, down from 97 billion euros in mid-2012, according to the Bundesbank’s Financial Stability Review. Commerzbank AG announced its exit from ship financing in 2012.

Japan Orders

In Japan, new ship orders at domestic yards climbed 76 percent to 16.5 million gross tons last fiscal year, according to an April 11 statement by the Japan Ship Exporters’ Association.

“European banks are gradually returning to the market, but they won’t dominate like in the past,” Mogaki said. Japan’s market share “may rise a little bit. Some are buying Japanese ships because they like them and others are because they are cheap now.”