TOKYO -- JFE Holdings will raise about 200 billion yen ($1.88 billion) through 60-year subordinated loans as early as this month, capitalizing on low interest rates to secure funds for investment in growth.
The Japanese steelmaker is expected to sign contracts soon with multiple financial institutions, including Mizuho Bank and the Development Bank of Japan. The loans are seen having an annual interest rate of around 1%.
Subordinated loans typically have relatively high rates because they rank below other loans with regard to claims on a borrower's assets, so risks are higher for the lender. But with interest rates as a whole declining due to the Bank of Japan's negative interest rate policy, the cost of such loans is still low and the terms advantageous.
JFE plans to spend 650 billion yen through the fiscal year ending March 2018, including on the introduction of advanced technologies at domestic production facilities for high-value-added steel. It also intends to ramp up overseas acquisitions.
The decline in steel prices has slammed JFE's earnings. The company currently has almost 1.4 trillion yen in interest-bearing debt. Taking out subordinated loans, part of which can be counted as capital, will help JFE improve its creditworthiness.
Japanese companies are increasingly turning to long-term debt to take advantage of low interest rates. This year, Idemitsu Kosan and Orix have each raised roughly 100 billion yen through 60-year subordinated loans. West Japan Railway, or JR West, has floated 40-year bonds, the longest term for debt instruments issued by private-sector companies in Japan.