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Banking & Finance

Mitsui jumps on hybrid-financing bandwagon

TOKYO -- Mitsui & Co. plans to raise up to 500 billion yen ($4.72 billion) through subordinated loans this fiscal year, part of a trend toward hybrid financing in Japan as companies capitalize on ultralow interest rates to shore up their capital bases.

The trading house said Wednesday it received a 350 billion yen subordinated loan from a syndicate including Sumitomo Mitsui Banking Corp. The 60-year term is typical of this type of debt. Though subordinated loans have higher interest rates than other forms of lending because they rank lower in terms of claims, Mitsui apparently received a rate of less than 2%. This is Mitsui's first subordinated loan.

Three ratings agencies treat 50% of the loan as equity. Mitsui can repay part or all of it after seven years.

The trading house logged its first postwar net loss last fiscal year amid resource write-downs, and Mitsui's net debt-to-equity ratio is approaching 1. The loan lowers the ratio to around 0.9. The company plans to raise another 150 billion yen through loans or bonds depending on demand, reducing the ratio to an estimated 0.88.

Mitsui aims to avoid further damage to an already dented credit rating while securing a stable funding source that will help it participate in long-term projects such as overseas resource development and infrastructure construction. The trading house decided against an issuance of new shares to reinforce its balance sheet, citing a poor market environment, high costs and a dilution of existing stakes.

JFE Holdings announced an agreement Wednesday to raise 200 billion yen via a subordinated loan from Mizuho Bank, SMBC and other lenders, part of which will be considered equity. The steelmaker said the loan can strengthen its finances without share dilution.

Oil company Idemitsu Kosan decided in March to procure 100 billion yen through subordinated debt. Other companies may follow suit.

(Nikkei)

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