Mizuho to deploy billions in riskier funding to help Japan's firms with virus fallout

Mizuho Financial Group Inc. is ready to deploy “several billion dollars” in riskier funding to companies that need more capital to cope with the fallout from the coronavirus outbreak, its chief executive has said.

Japan’s third-largest bank is in talks with corporate clients to provide financing via subordinated loans and purchases of preferred shares totaling more than ¥100 billion ($930 million), and is prepared to supply several times more, Chief Executive Officer Tatsufumi Sakai said.

Such transactions are a key growth area for Mizuho, which has been building its mezzanine and equity financing business to make up for shrinking profitability on regular loans at a time of low domestic interest rates. The pandemic is likely to fuel demand for such funding from struggling companies that need to beef up their balance sheets, Sakai said.

“The economic situation is worse than it was during the Lehman Brothers collapse,” he said, referring to the 2008 global financial crisis. “I have no doubt it will get far worse ahead.”

For lenders, subordinated credit and preferred shares are riskier than senior loans because they have less chance of recouping the money in case of default. For borrowers, they can count toward capital, helping them maintain or improve their credit ratings.

Even companies that have faced limited damage from the coronavirus-fueled recession are likely to seek this type of finance, according to Sakai, 60. Some may use it to grasp acquisition opportunities stemming from sharp declines in asset values, while others may need funds to reorganize their global supply chains, he said.

Mizuho has also been responding to a surge in demand for conventional loans in the wake of the pandemic. Sakai said the bank received requests for loans and other forms of financing totaling about ¥17 trillion, including ¥4 trillion overseas, and has provided ¥10 trillion.

Mizuho doesn’t disclose figures for its outstanding mezzanine and equity financing but had budgeted to increase the balance by ¥170 billion to ¥1.45 trillion in the year ended March. Bank unit chief Koji Fujiwara flagged the potential for boosting the total in an October interview.

Sakai said the bank will use money freed up by selling so-called cross-shareholdings — typically passive stakes in companies. Mizuho reduced those holdings by ¥147.8 billion last fiscal year and plans to offload a similar amount by March 2022, a presentation showed last month.

Such financing tends to have better returns for lenders to reflect the bigger risks, and Sakai said it will give the bank better access to customers’ strategic decision-making than the cross-shareholdings.

“Taking a stake is our angle, in addition to providing senior loans or underwriting bonds,” he said. “Instead of being a silent shareholder, we would like to engage in active discussions.”