Nomura aims to raise up to US$293m for fund to finance buyouts

Abe's economic stimulus is fuelling deals and greater investor demand for higher-yielding products, pushing M&A activity to a 13-year high

PUBLISHED : Thursday, 07 August, 2014, 2:58pm
UPDATED : Tuesday, 12 August, 2014, 6:27pm

Nomura Holdings is planning to raise up to 30 billion yen (HK$2.27 billion) for a fund offering loans for corporate buyouts as private equity deals in Japan reached a 13-year high in the first half.

The country's largest brokerage is pursuing cash after teaming up with London-based Intermediate Capital Group in December last year to form a fund management company catering to investors in buyout deals.

Nomura joins Tokio Marine Holdings in establishing a vehicle to attract money from investors looking for higher fixed-income yields.

"By raising funds from third parties, we can increase deal opportunities," said Koichi Funayama, a representative director of Nomura ICG.

The company is looking to provide subordinated loans and preferred share financing to private equity investors at a yield of as much as 12 per cent, according to Funayama.

Private equity companies including KKR and Carlyle Group of the United States were involved in Japanese merger and acquisition deals valued at US$5.5 billion in the past 12 months, or about 11 per cent of all purchases of domestic firms.

Prime Minister Shinzo Abe's economic stimulus is spurring deals and greater investor demand for higher-yielding products, making Japan attractive, according to ICG.

"Abenomics seems to be from our perspective very good," said Christophe Evain, ICG's chief executive. "Japanese institutional investors who have been facing very low interest rates for a longer period of time than here in Europe and the United States welcome the opportunity to invest in higher-yielding and higher-return products."

Abe came to power in December 2012 pledging to end more than a decade of deflation with monetary stimulus, fiscal spending and deregulation.

Japan's benchmark 10-year bond yield has declined 22 basis points, or 0.22 percentage point, this year to 0.515 per cent, as the Bank of Japan buys about 7 trillion yen in sovereign notes a month. The central bank first took short-term interest rates to near-zero in 1999. US 10-year treasuries yield 2.49 per cent.

The Nomura ICG fund will offer to private equity firms so-called mezzanine financing, which gives a lender the right to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is typically subordinated to debt provided by senior lenders such as banks.

"This is an economy where you have a large number of very diversified groups," Evain said. "There have been more divestments from large groups and we would expect more activity in the buyout market going forward."

Panasonic Corp in September last year agreed to sell the majority of its stake in a health-care unit to KKR and sold two-thirds of a logistics unit to Nippon Express in January as it focused on returning to profitability.

The company had a net income of 120 billion yen in the year to March, compared with a combined loss of 1.53 trillion yen in the two previous years.

Sony Corp agreed in February to sell its personal computer business, best known for its Vaio brand, to Japan Industrial Partners, a buyout fund operator. Japan Industrial Partners acquired NEC Corp's internet provider NEC Biglobe this year.

The number of funds established last year for the purpose of investing in corporate buyouts rose to 12 from five in 2012, and they provided financing totalling 320.1 billion yen, the highest since 2008, according to data from the Japan Buy-out Research Institute Corp. Merger and acquisition deals in Japan by private equity funds in the first six months of the year reached 47, the most since at least 2002.

Tokio Marine Mezzanine, founded in December, said in May it had raised 25 billion yen from investors. While yield premiums on senior debt for buyouts have declined as banks compete for loans offering record-low returns, mezzanine debt providers have been less affected by the market moves, according to Noriyuki Sando, a partner at the unit of the insurer.

The company charged about 8 to 10 per cent interest, Sando said. That compares with average interest of 0.905 per cent in June on new lending by banks, according to central bank data.