EUJapanCentreforIndustrialCooperation

SeminarReport

Multinationalbusinessfinanceintimesof globalfinancialcrisis: Lookingatalternativestrategies

10June 2010

 Thisreportispublishedby: TheEUJapanCentreforIndustrialCooperation 133RoundCrossIchibancho,Chiyodaku, Tokyo,Japan1020082 Tel: +81(0)332216161 Fax: +81(0)332216226 URL: www.eujapan.eu June2010

SeminarReport2010: Multinationalbusinessfinanceintimesofglobalfinancialcrisis 1

Summary
On 10 June 2010, the EU-Japan Centre for Industrial Cooperation, in cooperation with the Maison Franco-Japonaise organised a seminar on "Multinational Business Finance in times of Global Financial Crisis: Looking at Alternative Strategies", with speakers from the University of South Brittany and two private firms, Morrison & Foerster and White & Case. The objective was to present various schemes developed recently to finance international operations of EU and Japanese companies. In the current context of financial and economic crisis, it is indeed increasingly difficult to obtain loans from banks and finance companies. As a consequence, some companies have experimented new legal arrangements to finance their operations: F.B.O. (Finance, Build, Operate); Corporate Funding Association (C.A.F); Innovative solutions such as: Modern Rights Issue, Private convertible bonds, Tokyo AIM; the Pan Asian Bond Market, Kangaroo bonds; and Export loans, import loans, investment loans from the Japanese Bank for International Cooperation (JBIC) and all trade insurance activities from Nippon Export and Investment Insurance (NEXI).

SeminarReport2010:Multinationalbusinessfinanceintimesofglobalfinancialcrisis

SeminarOutline
Date: Place: Organised by: Thursday, 10 June 2010, 14:00 ~ 16:00 EU-Japan Centre for Industrial Cooperation EU-Japan Centre for Industrial Cooperation Maison franco-japonais

Programme: 14:00 Opening remark, Mr. Julien Guerrier, General Manager, EU-Japan Centre for Industrial Cooperation Building multinational companies networks to escape from banking constraints in times of liquidity crisis Speaker: Mr. Gilles LHUILIER, Professor (Private Law), South Brittany University, New and Existing Capital Markets Products Available to Japanese Companies Speaker: Mr. Tony GRUNDY, Partner, Morrison & Foerster The Role of ECAs (Export Credit Agencies) in times of Global Financial Crisis Focusing on JBIC and NEXI Speaker: Mr. Toshio DOKEI, Partner, White & Case Questions & Answers Closing remark, Mr. Julien Guerrier, EU-Japan Centre for Industrial Cooperation

14:05

14:40

15:10

15:40 16:00 Photos:

Top(fromleft):audience,audience,Prof.Lhuilier Bottom(fromleft):Mr.Grundy,Mr.Dokei,Q&Asession

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Majorissuesdiscussed
Gilles Lhui G ilier: Build ding multin national co ompaniesn networks to escape fro banking constrain o om g nts in i times of liquidity cr risis To d date, financ institutions have lo about 5 000 billion dollars du cial ost n uring the so o-called su ubprim crisis. A a consequ me As uence, bank loans have declined a private c k e and companies are strugglin a ng to fin capital in banks or o capital m nd n on markets. In this period o financial crisis, new internation t of l w nal cont tracts are u using the B Build Operate Transfe (BOT) system or the Corpo er orate Fundin ng Asso ociation (C.A.F.) schem to finan their ope me nce erations. Prof fessor Lhuil lier review two rec wed cent and im mportant ex xamples of new intern national tra ade cont tracts that ha enabled companies to evade constraints im ave d s c mposed by banks: 1-Th F.B.O. (F he Finance, Bu uild, Operate): The contract o the centu of ury, a minin contract (for Coltan a materia used in mobile phon ng t n, al m nes and found in K Katanga) sig gned in Apr 2008 bet ril tween a con nsortium of Chinese co f ompanies an nd the D Democratic Republic o Congo, is in reality a group of co of ontracts ma of: ade (1) A cooperati contrac between t Congol ion ct the lese govern nment and a consortium of Chine m ese com mpanies that organises t transfer of mining rights from the Democ the r cratic Repub of Cong blic go (DR to the jo venture company. The value of these rig has bee evaluate to 2 billio RC) oint e ghts en ed on USD D. (2) A joint vent ture agreement between Gecamine (National Mining Co n es l ompany) and the Chine ese Grou that mai up inly refers to the com mmitments and the gu uarantees of the joint venture, wi f v ith vario loans: a loan to be provided to the Congo investors, a loan to b provided to the Cong ous o o be go mini compan (no intere will be charged), a loan and fi ing ny est financing to be provide to the joi o ed int vent ture compan and a loa to be prov ny an vided to the constructio of infrastructure fac e on cilities. (3) T statutes of the new created joint ventu compan the Chin The s wly d ure ny: nese consor rtium plans to invest 9 billion USD (6 b n billion USD for the de D evelopment of infrastru uctures -roa ads, railway ys, hosp pitals, etc- a 3 billio USD fo the revival of the m and on or mining secto 68 % of the capit or). o tal belong to the consortium of Chines compani (providi cash fl m se ies ing low for the operations), e wher reas 32% of the capital is owned b the DRC companies f l by C s.

SeminarReport2010:Multinationalbusinessfinanceintimesofglobalfinancialcrisis

This new type of contract underlines the following points: Generated profits will repay the loans granted by the Chinese consortium and will finance infrastructures in Congo; B2B networks between Chinese industrial and financial groups are an important strength; The Chinese commitment is to arrange financing and the price of networking is very expensive (6 billion USD). 2- The Corporate Funding Association (C.A.F): A new business to business cooperative bank system has been created recently due to the adoption of new tax regulations on transfer price. This system reproduces an old Swiss banking system, created by the WIR Bank of Basel in 1944, a not-for-profit bank that started with 16 members and has grown to 62 000 members today. The CAF groups several companies, each one being both a shareholder and a borrower. The cooperative bank statute allows them to redistribute the profits to the borrowers (who are also shareholders) and to escape the transfer price regulation. The WIR system mainly involves SMEs but the French system includes some of the biggest groups/companies. Tony Grundy: New and Existing Capital Markets Products Available to Japanese Companies In Japan, the existing universe of capital markets products tapped by Japanese companies seeking equity and debt finance is mainly made up of straight bonds, convertible bonds and common shares. The principal offshore market for Japanese companies is the Euromarket. Some Japanese companies have overseas share listings, for example in New York and London. Only a few innovative financial products have been offered in Japan over the last 40 years, mainly because the Japanese Civil Law system limits the types of capital markets products and features of those products that a Japanese company can issue. The lack of any overarching legal or regulatory authority in Japan also makes change difficult. The recent innovative solutions appeared in Japan are: -Modern Rights Issue (May 2010) (Takara Leuben Co. Ltd). Market practitioners expect more rights issues particularly for smaller entities with a mainly domestic shareholder base; -Private convertible bonds; -Tokyo AIM: it is a new market launched one year ago, but it is still difficult to attract companies, probably because of the global financial crisis. Although initially intended to develop as a highly successful market for growth companies, Tokyo AIM will list other businesses such as the non-core business which is wholly or partly spun off from an existing group; -The Pan Asian Bond Market: it is a project (at the concept stage) promoted by the Capital Markets Association for Asia to develop an Asian version of the Euromarket. It is expected to enable bonds denominated in Asian countries currencies to be issued regionally. This could benefit Japanese companies that have significant operations in Asian countries; -Kangaroo bonds: it is a new market developing in Australia: the issue by non Australian companies of bonds in the Australian wholesale market, like Samurai bonds in Japan.

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Toshio Dokei: The role of Export Credit Agencies (ECAs) in times of Global Financial Crisis Focusing on JBIC and NEXI The role of Export Credit Agencies is to cover companies against various risks abroad such as commercial and political risks, wars, expropriation, limitation on foreign exchange, etc, that private institutions can hardly cover, and to provide them with a favourable interest rate. ECAs have been playing a major role and today, during the financial crisis, they are supporting the international development of domestic industries and provide a safety net to maintain international financial order. The Japanese Bank for International Cooperation (JBIC) maintains and improves the international competitiveness of Japanese industry by utilizing a variety of financing instruments such as export loans, import loans, investment loans, etc. It is an international branch of Japan Finance Cooperation. Nippon Export and Investment Insurance (NEXI) focuses on trade insurance: it has facilitated Japanese companies' export expansion and overseas development for 50 years. NEXI covers losses incurred from the political and commercial risks. Recently, NEXI expanded the scope of insurance coverage for business transactions of overseas branches to support international business activities done by Japanese companies and expanded bilateral reinsurance relationships with other ECAs in order to provide insurance for supporting global supply chain of Japanese companies abroad. The role of ECAs is a major one in this period of financial crisis: they are supplementing the private sector and acting as an activator of the private financial institutions. Both public and private financial institutions should work together in order to support the international financial sector. The audience gathered 30 participants from EU and Japanese private companies or foreign Embassies. Questions were mostly asked about this new type of DRC-Chinese contract and the share of risks in this innovative formula.

SeminarReport2010:Multinationalbusinessfinanceintimesofglobalfinancialcrisis

Participants&Evaluation
Totalnumberofparticipants=30
Average evaluation of the event by participants on the scale of 1 to 5 (1 = Poor/Low; 5 = Excellent/High)
Learning value

3.92 3.96 3.91 4.05 3.84 3.9 3.92 3.81 4.06 4.09

1
Adherence to objective Adherence to interests Prof. Lhuilier presentation Mr. Grundy presentation Mr. Dokei presentation Handout Interpretation Event structure Staff

Industrial Academic Federations JP Public Organisation 7% 7% 4%

JP Government 10%

Business 46%

Media 13%

European Commission and EU Member States Embassies 13%

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Presentations&Handouts
Seminar programme

Presentation - Building multinational companies networks to escape from banking constraints in times of liquidity crisis (by Prof. Gilles Lhuilier)

Presentation - New and existing capital markets products available to Japanese companies (by Mr. Tony Grundy)

SeminarReport2010:Multinationalbusinessfinanceintimesofglobalfinancialcrisis

Multinational Business Finance times of Global Financial Crisis: Looking at Alternative Strategies
Date & Time: Venue: Co-organised by: Language: Thursday, 10 June 2010, 14:00 - 16:00 EU-Japan Centre for Industrial Cooperation Maison Franco-Japonaise and EU-Japan Centre for Industrial Cooperation English/Japanese (simultaneous interpretation) Participation:

The global market and the changing trends of contemporary international finance significantly affect multinational business finance. Business financing is one of the most necessary tools for multinational companies to obtain capital for the further expansion of their business. Large banks and finance companies generally provide business finance to multinational companies: apart from funds originating from shareholders and lenders, multinational companies may borrow funds from large banks. However, obtaining capital became even harder since the 2008 global financial crisis evolved into a funding crisis. Facing difficulties obtaining capital, some companies have tried out new legal arrangements to finance their export operations without asking for help from large banks. Set up by international legal experts, these new arrangements make use of classic instruments (such as joint venture companies, compensation, holdings acquisition, guaranty funds, etc.) to create networks between large companies allowing them to evade constraints imposed by the banks. In this seminar Professor Gilles LHUILIER will illustrate the topic with two specific examples: (1) a contract concluded between China and the Democratic Republic of Congo, and the financial aspects of what has been called the contract of the century (with an infrastructure financing for 9 billion USD). (2) a special system of cooperative bank companies that 15 French companies have set up in order to create not only some intra-group funding, but also a clearing house as well as a corporate cooperative bank. These two examples seem to belong to different worlds, but it is possible to find many similarities between them. In fact, networks or cooperation between companies (between companies and banks, between companies belonging to the same group, or between competitors) help to cope with the deficiencies of bank-related financing systems. For example, the creation of new and flexible legal arrangements helps to secure the due diligence process and enables loans to be obtained more easily. Such new legal instruments consist in particular of sui generis contracts drawn up by international lawyers, who themselves contribute progressively to the development of new ways of doing business. To extend the discussion on the topic of global business and finance in times of financial crisis, the seminar is also joined by two leg al practitioners to discuss the issues of capital market products and export credits.

Programm
14:00 14:05 Opening remark, Mr. Julien Guerrier, General Manager, EU-Japan Centre for Industrial Cooperation Building multinational companies networks to escape from banking constraints in times of liquidity crisis Speaker: Mr. Gilles LHUILIER, Professor (Private Law), South Brittany University, France New and Existing Capital Markets Products Available to Japanese Companies Speaker: Mr. Tony GRUNDY, Partner, Morrison & Foerster The Role of ECAs (Export Credit Agencies) in times of Global Financial Crisis Focusing on JBIC and NEXI Speaker: Mr. Toshio DOKEI, Partner, White & Case Questions & Answers Closing remark, Mr. Julien Guerrier, General Manager, EU-Japan Centre for Industrial Cooperation

14:40 15:10

15:40 16:00

This seminar is a side event for an international symposium organised at Maison Franco-Japonaise on 11-12 June 2010 on foreign direct investments in Asia - Japanese, Chinese and Indian Investments in and out: New Trends in the Globalization of Law from and within Asia.

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