Financial Instruments

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4

Financial Instruments

1 Financial Instruments

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Financial Instruments 1. Financial Instruments

4 Financial Instruments

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Export Loans

Financial institution, etc., in foreign country Importer(s) in foreign country(ies) Japanese exporter(s) Loan (B/L)*2 Loan (B/C)*1

Exports of plants, etc.

Loans

Export loans are provided to overseas importers and fi nancial institutions to support fi nance exports of Japanese machinery, equipment and technology mainly to developing countries. In particular, products such as marine vessels, power genera-tion facilities and other types of plant equipment incorporate a large amount of advanced technology, and their export contributes to enhance the technological base of Japanese industries. Further, Japanese shipbuilding and plant facilities industries have a broad range of supporting industries in-cluding mid-tier enterprises and SMEs producing parts and components. Export loans JBIC provides are also expected to positively contribute to the business of these Japanese companies. Export loans are also available to developed countries in eligible sectors (see note).

Terms and conditions of export loans are determined based on the OECD Arrangement. In principle, the loan amount should not exceed the value of an export contract or technical service contract, and excludes down payment. While local costs cannot, in principle, be applied to the loan, such costs may be covered provided that the amount is within the scope prescribed by the OECD Arrangement.

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Eligible Sectors of Export Loans in Developed Countries (As of October 31, 2012) [Integrated Infrastructure System Projects]

Railways (high-speed, inter-city projects and projects in major cities), water busi-ness, biomass fuel production, renewable energy power generation, nuclear power generation, power transformation, transmission and distribution, highly effi cient coal-fi red power generation, coal gasifi cation, carbon capture and storage (CCS), highly effi cient gas-fi red power generation and smart grid

[Other Export Transactions]

Ships, satellites, aircrafts, medical positron beam therapy equipment

*1. Loan to foreign importers (Buyer’s Credit or “B/C”).

*2. Loan to foreign fi nancial institutions (Bank-to-Bank Loan or “B/L”).

Due to the expansion of the global rolling stock market, many manufacturers in Europe, Asia, North America and elsewhere are vigorously engaged in business activities to win orders for transport infrastructure. In Cairo, the capital of Egypt, chronic traffi c congestion caused by excessive concentration of the population is posing major problems. It was against this back-drop that JBIC provided support for the export of Japanese companies by fi nancing the procurement of a fl eet of rolling stocks mainly manufactured by Japanese companies for the project of constructing Line 3 of the Greater Cairo Metro Net-work that links the city center with Cairo International Airport.

As the fast-paced growth in the Indian economy in recent years has caused chronic power shortages, JBIC provided export credit, through India’s largest private sector bank, to fi nance the export to India of thermal power generation boiler/turbine sets that embody supercritical pressure coal-fi red power generation technology that is expected to reduce the burden on the envi-ronment. This loan supports overseas infrastructure business development by Japanese companies as well as contributing to India’s power supply capacity.

Support for Export of Transport Infrastructure Supporting Overseas Business Development of _{Japanese Companies}

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4 Import Loans

Foreign exporter(s) Japanese Importer(s)

Loan

Imports of natural resources Loan

Import loans support imports of strategically important goods including natural resources. They are extended to Japanese importers or foreign exporters. As Japan is poorly endowed with natural resources, stable imports of natural resources over the long term are one of the key factors underpinning domestic economic activity. Import loans fi nance the develop-ment and import of energy resources, including oil and LNG, and mineral resources, including iron ore, copper and other rare materials.

In addition to natural resources, JBIC provides a guarantee facility for goods and services essential to the sound develop-ment of the Japanese economy, such as for the import of aircraft.

 Products Eligible for Import Loans (Natural Resources) Oil, petroleum gas, LNG, coal, uranium, metallic ore, metals, mineral phosphate, fl uorite, salt, lumber, wood chip, pulp, and other materials

Financial Instruments

1. Financial Instruments

The United Arab Emirates (UAE) has been a stable crude oil exporter for Japan for more than 30 years. In addition, Abu Dhabi allows the entry of foreign-affi liated companies to operate oil fi elds on the basis of concession agreements. Thus, the UAE is an important country for Japan’s resource strategy. JBIC signed MOUs for the further strengthening of its comprehensive and strategic partnership with Abu Dhabi National Oil Company (ADNOC) in Abu Dhabi, which is a hub of oil and gas produc-tion in the UAE. JBIC further provided import loans for ANDOC, thereby contributing to securing a stable supply of energy resources to Japan. Financing to Ensure Stable Supplies of Oil from Overseas

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Government, fi nancial institution, etc., in foreign

country, Japanese bank

Japanese affi liate(s)

Joint venture partner(s) Japanese fi rm

Project(s) in foreign country(ies)

Loan

Loans and/or equity investment Loan Loans Loans Equity investment Loan Loans

Overseas Investment Loans

Overseas investment loans support Japanese foreign direct investments. They are extended to Japanese companies (investors), overseas affi liates including joint ventures where Japanese fi rms have equity interests and governments or fi -nancial institutions that make equity investments in or extend loans to such overseas affi liates.

Direct loans to Japanese companies are intended for mid-tier enterprises and SMEs, as well as for projects aimed at developing or securing interests in overseas resources that are strategically important to Japan, or for projects to as-sist with merger and acquisition (M&A) activities and other agreements (including to large fi rms). Moreover, JBIC is able to provide two-step loans (TSLs) to support the overseas busi-ness deployment of Japanese companies, including mid-tier

enterprises and SMEs, as well as TSLs intended to support their M&A activities. JBIC is also able to provide short-term loans for overseas business operations when bridge loans are required to fi ll the fi nancing gap before it offers long-term loans. JBIC is further empowered to extend investment loans for projects in developed countries for eligible sectors (see note).

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Eligible Sectors of Overseas Investment Loans in Developed Countries (As of October 31, 2012)

Railways (high-speed, inter-city projects and projects in major cities), water business, renewable energy power generation, nuclear power generation, power transfor-mation, transmission and distribution, highly effi cient coal-fi red power generation, coal gasifi cation, carbon capture and storage (CCS), smart grid, development of telecommunications network, biomass fuel production, highly effi cient gas-fi red power generation, aircraft maintenance and sales, M&A activities, etc.

Copper is an important mining resource used in a wide range of applications, such as electrical cables, automobiles and build-ing materials, though Japan is currently wholly dependent on imports for its supply of copper concentrates. JBIC is providing the fi nancing for the Caserones Copper Mine project in Chile, the fi rst 100% Japan-owned large-scale overseas copper mine development. This project secures a steady supply of copper concentrates to Japan, and is strategically important in terms of both the acquisition of mine development and operational know-how overseas by Japanese companies, as well as the securing of mineral resources for Japan over the medium to long term.

There has been increasing needs for mechanization of agricul-ture, due to economic growth, income growth among agri-cultural households and a decrease in agriagri-cultural population inThailand, which has about six times more rice paddy fi elds than Japan. As a result, the agricultural machinery market has been rapidly growing. JBIC extended a loan to YANMMAR Co., Ltd., a Japanese agricultural machinery manufacturer, for fund-ing its sales of agricultural machinery in Thailand. The loan is expected to support Japanese companies to expand their business in Thailand, the economy of which is on a path of sustained growth.

Financing for Japanese Companies Investing in

Natural Resource Development Supporting Japanese Manufacturers’ Overseas Business Deployment

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Project(s) in the recipient country(ies)

Exporter(s) Government,

fi nancial institution, etc., in foreign country

Foreign importer(s) Imports of equipment and technology

Loan

Untied Loans

Untied loans are fi nancing basically to developing countries necessary to implement projects and import goods, or for such countries to level their international balance of trade, or stabilize their currency. Loans are not conditional on procure-ment of equipprocure-ment and materials from Japan.

Capital procured from untied loans is used to:

 Secure stable supplies of energy and mineral resources to

Japan;

 Promote business activities of Japanese companies;  Maintain and expand trade and direct investment from

Japan;

 Finance projects having signifi cant effect on global environ-mental preservation; and

 Finance projects maintaining international fi nancial order

Untied loans may be categorized into two types: project loans and policy adjustment loans. Project loans are used to fi nance projects for developing economic infrastructure, including power, telecommunications and transportation facili-ties, and for developing natural resources. Policy adjustment loans support economic management, including structural adjustment in the overall economy and in individual sectors. A project loan may take the form of a TSL, which supports the promotion of exports and the development of supporting industries in a developing country through its offi cial fi nancial institution.

Drawing on its strong ties with developing countries fos-tered by the provision of untied loans, JBIC provides indirect support for Japanese fi rms’ business activities in developing countries by helping solve disputes that arise between devel-oping country authorities and Japanese fi rms.

JBIC provided a loan for Denizbank A.S., one of the leading commercial banks in Turkey, to support the funding of its environment-related projects, such as renewable energy and energy effi ciency improvement. This fi nancing is provided as part of JBIC’s GREEN (Global action for Reconciling Economic growth and ENvironmental preservation) operations ( see p. 69). The Turkish government ratifi ed the Kyoto Protocol in August 2009 and has been making active efforts to mitigate climate change. The loan is expected to contribute to mitigating greenhouse gas (GHG) emissions, as well as disseminating advanced environmental technologies to Turkey. Supporting Renewable Energy and Energy Conservation Projects

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Japanese fi rm(s) Japanese fi rm(s) Japanese fi rm(s) Japanese fi rm(s) Equity participa-tions Equity participa-tions Equity participa-tions Equity participa-tions Equity participa-tions Major role Business alliance Overseas project Foreign fi rm Fund Fund Other investor(s) Other investor(s) Equity participation Equity participation Equity participation Equity participation consortium Financial Instruments 1. Financial Instruments

4 Equity Participations

Equity participations are capital contributions to the companies which Japanese companies have equity stakes set up by Japanese companies to undertake overseas projects and funds where Japanese companies perform a signifi cant role. In principle, equity participations take the following forms.

 Japanese fi rms make equity investment

in an overseas project

 Japanese fi rms acquire equity interests in a foreign fi rm to form business alliance

 Japanese fi rms participate in fund (and perform such major role as

general partner in their management and investment decisions)

 Japanese fi rms form a consortium and participate in an international fund

JBIC has invested in a fund that targets growth companies in Viet Nam. This private equity fund, managed by Japanese companies, invests in Vietnamese companies that need capital and technology to grow, and provides them with support in such areas as alliances with Japanese companies, with the aim of enhancing their corporate value. In addition to supporting growth of Vietnamese companies, the fund contributes to promote business deployment of Japanese companies in Viet Nam, which is highly expected as a promising manufacturing base and consumer market for them.

Equity Participation in a Fund for Growth Companies in Emerging Nations

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In addition to loans and equity participations, JBIC also provides support through its guarantee facility. Guarantees are provided for loans extended by private fi nancial institutions, bonds issued by governments of emerging nations or overseas Japanese com-panies, and currency swap transactions. JBIC also issues reassurance for guarantees from export credit agencies in other countries.

Private fi nancial institution, etc.

Investor(s)

Japanese fi rm(s) Japanese importer(s)

Japanese affi liate (Issuer) Government, etc., in foreign country Overseas infrastructure projects,etc. Foreign exporter(s) Japanese fi rm (Parent company, private

fi nancial institution, etc.)

Private fi nancial institution, etc.

Swap counterparty

in overseas Private fi nanced institution

Guarantee Guarantee Guarantee Import of products Guarantees Loan Currency swap contract Loan Issue of bonds Counter guarantee Issues of public bonds, etc. Invest-ment Operation Guarantee Sub guarantee Loan Guarantee Local currency loan

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_{Financial Instruments} 1. Financial Instruments

Guarantees

 Guarantees for Imports of Manufactured Products

 Guarantees for Corporate Bonds Issued by Japanese Affi liates

 Guarantees for Co-fi nancing, Overseas Syndicated Loans and Public Sector Bonds

 Guarantee for Currency Swaps

JBIC has a guarantee facility for the borrowings made by Japanese fi rms to fi nance the import of aircraft and other manufactured products that are important for Japan.

JBIC supports Japanese affi liates op-erating overseas by providing guaran-tees for the bonds they issue in local capital markets.

Loans to developing countries involve, among others, currency conversion, transfer and country risk. Guarantees that JBIC issues to cover such risks will enable Japanese private fi nancial institutions to provide medium- and long-term fi nancing for developing countries, supporting developing countries to bring in private capital and facilitating private fi rms expand-ing international business activities.

JBIC provides guarantees for swap transactions to support the local currency fi nancing of overseas infra-structure projects, etc., undertaken by Japanese fi rms.

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Foreign fi rm(s) Japanese fi rm(s) Foreign importer(s) Foreign ECA Private bank(s) Export Counter guaran-tee Loan Guarantee

Loans from the IMF, World Bank, etc. Government, fi nancial

institution, etc., in foreign country

Import or other external transaction(s)

Loan tionality)

(Condi-Financial Instruments

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 Counter Guarantees for Export Credits

When Japanese exporters export machinery and equipment with other country’s fi rm(s), JBIC provides a counter guarantee for the guar-antee provided by that country’s Export Credit Agecy (ECA), thereby participating in a multilateral mutual guarantee scheme.

Bridge Loans

Acquisition of Loan Assets and Public and Corporate Bonds

Research and Studies

JBIC provides short-term fi nancing for governments of develop-ing countries to meet their foreign currency needs for external transactions when they face balance-of-payment diffi culties.

When JBIC provides export loans, import loans, overseas in-vestment loans and untied loans, JBIC can also provide credits, in addition to providing loans and guarantees, by purchasing loan assets and acquiring public and corporate bonds1_issued

by borrowers for funding. The objective of such operations is

JBIC conducts research and studies on individual projects dur-ing their initial stage, as well as research and studies focused on specifi c regions or industry sectors that may have a bearing on specifi c projects occasionally. This is an effective means of uncovering potentially favorable projects, and supports to increase exports of materials and services from Japan for that project, as well as to expand opportunities for participation by Japanese companies. Research and studies are conducted at each stage necessary for realization of the project, including creation of a master plan for an individual project, conducting of prefeasibility and feasibility studies (Pre-F/S, F/S), front end engineering design (FEED), and studies of regions and industry

to promote private fi nancial institutions’ loans in international fi nance and Japanese fi rms’ funding in international capital markets.

sectors linked to specifi c projects. After the research and studies are completed, follow-up reviews are conducted at least once each year to confi rm the progress of the project. Research and studies are conducted in the following order. 1. Selection of a research and study subject

2. Selection of the contractor to conduct research and studies 3. Conduct of the research and studies

4. Completion of the research and study report 5. Follow-up

1. The scope of assets and securities acquired includes public bonds, corporate bonds, debt securities and trust benefi ciary rights.

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Special purpose company

Overseas Local companies

Originator Private fi nancial institutions, etc. Overseas Japanese affi liates Obligor Overseas Japanese affi liates Private fi nancial institutions Investors (in Japan and overseas)

Investors

Transfer of loans

Accounts receivable, etc. Guarantee

Guarantee Guarantee

Loans

Assignment of account receivable

Purchase of asset-backed security Issue of asset-backed security SPC or Trust Proceeds Asset-backed securities Proceeds

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_{Financial Instruments} 1. Financial Instruments

JBIC provides support for securitization, etc. in order to supplement and encourage the activities of private fi nancial institutions.

Securitization, etc.

1. Securitization (Guarantees)

3. Securitization of Receivables, etc.

2. Securitization (Acquisition of Securities)

In cases where special purpose companies or trust companies issue asset-backed securities or other fi nancial products with loans or other assets as collateral, JBIC guarantees the pay-ment of such asset-backed securities to reduce the country and structure risks, thereby supporting the issuance of bonds in the emerging capital markets.

JBIC provides guarantees for the receivables and other mon-etary claims held by overseas subsidiaries of Japanese com-panies, in order to facilitate the purchase of such receivables by banks. JBIC is also able to provide guarantees for securities

JBIC supports bond issues by acquiring a portion of the asset-backed securities issued by special purpose companies or trust companies with loans or other assets as collateral. JBIC’s acquisition will contribute to the smooth issuance of bonds, as well as stimulates the market by circulating the acquired bonds back into the market when market conditions allow it.

issued by special purpose companies (SPCs) or trust com-panies to secure monetary claims they have acquired from overseas Japanese subsidiaries.

The above diagrams depict the schemes where special purpose companies (SPCs) are used, but the clients can also use schemes where trusts are used or JBIC acquires or provides guarantees for assets backed by securitization.

The automobile market in the United Arab Emirates (UAE) is expected to continue to grow and, with Japanese automobiles accounting for a 60% share of the market, it is considered a promising market for Japanese automakers. JBIC acquired and provided guarantees for securitized notes backed by auto loans originated* by Emirates NBD PJSC (ENBD), the largest bank in the UAE in terms of assets. This was the fi rst auto loan securitization in the UAE. With the payment guarantees for the securities sold to investors, JBIC minimized the country and structure risks, and provided new investment opportunities to the market. This deal supports smooth provision of auto loans by local banks, thereby contributing pro-mote steady growth in the UAE automobile market and serving to uphold and expand an important market for Japanese automobile manufacturers. Securitization of Automobile Financing Receivables

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Clean energy projects (renewable energy, etc.) Water projects Rail projects (inter-city, metropolitan transit) Smart grid-related

projects M&A projects

Large-scale resource interest acquisition projects Energy effi ciency/ Alternative energy projects Projects in Asia

Supporting Environment Sector and Asian Projects, etc. Promoting Investment in

M&A Projects Supporting for the Overseas Deployment of Integrated

Infrastructure Systems Implemented by Japanese Companies

Project Eligible for Support under the E-FACE Initiative

Private Sector Equity participations Equity participations Equity participations Loans Loans Loans Equity partici-pations Equity participations/Loans Equity participations/Loans

Guarantees

2. Prominent Initiatives in Recent Years

4 Prominent Initiatives in Recent Years

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E-FACE Initiative to Finance Strategic Projects

JBIC established E-FACE (Enhanced Facility for Global

Coop-eration in Low Carbon Infrastructure and Equity Investment)1_in

April 2011, in order to offer proactive support for the overseas deployment of integrated infrastructure systems and other strategic projects, while also mobilizing private sector funding to the greatest extent possible. This facility is intended to fi nance the overseas deployment of integrated infrastructure systems, to promote investment in such projects as M&A deals

and large-scale acquisitions of natural resource interests, and to provide risk capital for energy conservation and new energy projects, as well as projects in Asia.

1. This Facility was launched to develop and expand the JBIC Facility for Asia Co-operation and Environment (FACE), which supported Asian projects, primarily in the sectors that would contribute to mitigating climate change, infrastructure development projects, and the Leading Investment to Future Environment Initiative (LIFE Initiative), which aimed to support environmental investments undertaken by governments and private sector companies in Asian and other developing countries.

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Promoting the overseas business having the purpose of preserving the global environment, such as preventing global warming

Private Flows

Guarantees Equity participations/ Loans

Eligible Entity:

Eligible Projects:

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_{Financial Instruments}

GREEN Operations

JBIC launched GREEN (Global action for Reconciling Economic growth and ENvironmental preservation) operations in April 2010. Previously, JBIC’s fi nancing operations had centered mainly on projects directly aiming to maintain and improve international competitiveness of Japanese industries, such as projects involving Japanese fi rms’ investment and machinery/ equipment exports. Accordingly, projects dedicated solely to preservation of the global environment were so far not eligible for JBIC support. Launching GREEN operations enabled JBIC to focus its fi nancing on projects seeking to preserve the global environment, such as those that materially reduce greenhouse gas (GHG) emissions, while propagating advanced Japanese environmental technologies across the world.

To help implement GREEN operations, JBIC also established the Guidelines for Measurement, Reporting and Verifi cation of GHG Emission Reductions in JBIC GREEN operations (J-MRV Guidelines), which set out the basic concepts and procedures for the J-MRV Guidelines.

Foreign government, governmental agencies or local governments, public enterprises such as utilities operating closely with government,

Foreign Financial Institution, multilateral Institution.

1. Favorable impact on preservation of the global environ-ment, such as signifi cantly reducing GHG emissions. 2. Accepting JBIC-MRV* process on the effect of the

environ-mental preservation.

(e.g. Energy effi ciency improvement, Renewable energy, etc.)

* JBIC original methodology for Measurement, Reporting and Verifi cation.

Guarantee and Acquisition toward Tokyo market Enhancement (GATE) Facility

JBIC launched the new “Guarantee and Acquisition toward

Tokyo market Enhancement (GATE)” facility for supporting samurai bond1_{issuance in April 2010. This enables JBIC to}

acquire samurai bonds where appropriate in addition to pro-viding partial guarantees for samurai bond issues. The GATE facility thereby helped foreign governments and government agencies to consistently raise funds in the Tokyo market. Since May 2009, JBIC has stood behind the self-help ef-forts of Asian countries to regain access to international mar-kets with the Market Access Support Facility (MASF), which provides guarantees to samurai bonds. Under this facility, JBIC provided guarantees for samurai bonds issued by these countries that are temporarily unable to raise funds through sovereign bond issuance in international fi nancial markets due to the market turmoil caused by the global fi nancial crisis. Under MASF, JBIC guarantees supported samurai bonds issued

by the Indonesian and Philippine governments. “Responding to disruptions in fi nancial order in the international economy,” JBIC also supported samurai bonds issued by the Colombian and Mexican governments.

The GATE facility, which extended and enhanced the func-tions of the MASF, backs up bond issues by foreign govern-ments and government agencies in the Tokyo market. It is thereby expected to help attract foreign bond issuers to the Tokyo market; induce them to become regular participants in the Tokyo market; and expand and diversify the range of investment opportunities available to Japanese investors, which leads to an increase in activities in the Tokyo samurai bond market.

1. Samurai bonds are yen-denominated bonds issued in the Japanese fi nancial market by foreign issuing bodies, such as governments and companies. The investors pay in Japanese yen to purchase these bonds when they are issued.

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4 Promoting Efforts for Africa

Expanding Local Currency Loans

Following the Japanese government’s pledge of $2.5 billion in financial support for Africa over the next five years during the Fourth Tokyo International Conference on African Develop-ment (TICAD IV) in May 2008, JBIC has been making vigorous efforts to support business investments in Africa. In April 2009, the JBIC Facility for African Investment (FAI) was established to support projects undertaken by Japanese companies for developing and expanding their business in Africa by drawing on JBIC’s equity participation, guarantee facility, etc. FAI allows JBIC to make equity participations in Japanese companies’ individual projects in African countries and provide guarantees for the loans to these projects conducted by private finan-cial institutions. JBIC continues to be committed to actively supporting Japanese companies for expanding business op-erations into Africa by drawing on this facility or other JBIC financing facilities and schemes.

To date, JBIC has responded to local currency funding needs of Japanese companies in developing countries by providing: (1) loans through obtaining funds in swap transactions (e.g. South African rand and Thai baht); (2) loans by obtaining funding through local currency bond issues (e.g. Thai baht); (3) guarantees for local currency corporate securities issued by local Japanese subsidiaries or affiliates: (4) two-step loans to the banks in developing countries (loans provided by JBIC in hard currency to banks in developing countries are on-lent in local currencies). Following the promulgation and coming into effect of the JBIC Act in May 2011, JBIC is empowered to

provide guarantees for swap transactions between private financial institutions to meet funding needs associated with business operations and projects of Japanese subsidiaries and affiliates.

Under the Japanese overseas deployment of integrated in-frastructure systems project operated/advanced by public and private sector, needs of local currency funding is increasing in developing countries. JBIC will continue to provide support by drawing on appropriate financial facilities and schemes based on specific needs of Japanese companies.

Supporting Export of Textile Manufacturing Machinery to Angola by Japanese Companies