According to a senior official at the leading Japanese lender, the Inflation Reduction Act (IRA), which provides tax credits, is fueling a boom in factory development across the United States and aiding Mitsubishi UFJ Financial Group (MUFG) (8306.T) in maintaining its lead in project finance.
High Margin Financing Deals
For 13 years running, MUFG has held the top spot in U.S. project financing lending, capitalizing on the 2008 global financial crisis to close the gap left when competitors in the U.S. and Europe were obliged to reduce risk-weighted assets on their balance sheets.
According to Fumitaka Nakahama, the head of MUFG’s project finance division, the bank’s experience during difficult times and retained expertise have put it in a solid position to gain from a recent spike in project finance deals.
In addition to energy, power, and infrastructure, tax credits from the IRA “have helped expand the scope of project finance to new asset classes like batteries and data centers,” he claimed. He continued, “High-margin financing deals frequently result from the new assets.”
Large infrastructure and industrial projects can be long-term financed via project finance, with repayment primarily depending on cash flows produced by the project. According to LSEG, the total amount of project finance loan transactions in North America increased by over 70% in 2017. Currently, it employs roughly 360 project finance bankers worldwide.
Starte To Distribute
Over a ten-year period, the top three banks in Japan have dominated the worldwide project finance credit market given their extensive asset size of more than $6 trillion and global reach. But more stringent capital adequacy standards have put more strain on capital-intensive industries like project finance.
The $120 billion in outstanding project financing loans at major banks abroad have been brought to the attention of Japan’s banking regulator. In its policy outlook for this year, the Financial Services Agency stated that long-term exposure necessitates effective risk management.
In its most recent midterm plan, the No. 2 player in the globe, Sumitomo Mitsui Financial Group (8316.T), reviewed project financing as it “boldly reduces inefficient labor-intensive businesses, low growth, low profitability assets.”Nakahama confirmed that the company has previously experienced internal pressure.