Japan corporate funding demand soars after disaster

Reuters, Tokyo, March 27: Japanese companies' demand for funding has soared since the March 11 earthquake and tsunami, with the country's top three banks seeing a surge in new loan requests, lenders said on Sunday.

Companies are rushing to secure extra financing to repair damage to their operations in the areas worst-hit by the disaster as well as fund their day-to-day operations following fall in revenue amid output disruptions, the banks said.

Japan's top three banks, Sumitomo Mitsui Banking Corp, Mizuho Corporate Bank and Bank of Tokyo-Mitsubishi UFJ have received requests for new loans totaling 2.6 trillion yen ($32 billion) over two weeks, said the banks.

The total includes 1.4 trillion yen in emergency funds sought by Tokyo Electric Power Co (9501.T) the operator of the stricken Fukushima nuclear plant north of Tokyo. Even excluding that number, requests were running at about four times the usual levels, the banks said.

The top three banks and major trust banks are in talks to provide up to 2 trillion yen in emergency loans to TEPCO, sources said last week.

Sumitomo Mitsui is the core unit of Sumitomo Mitsui Financial Group (8316.T), Mizuho Corporate Bank is a unit of Mizuho Financial Group (8411.T) and BTMU is the core commercial banking unit of Mitsubishi UFJ Financial Group (8306.T).

Commercial paper issues also jumped by more than 50 per cent in the first week after the disaster, with new offers totaling about 1.1 trillion yen and rates for one- to two-month paper rising above 0.2 per cent from 0.11 per cent before March 11, the Nikkei business daily reported on Sunday.

In the weeks following the disaster, the Bank of Japan has been pumping record amounts of funds into the banking system to ensure that credit keeps flowing to affected businesses and it has also increased its purchases of commercial paper.

LOAN DEMAND LIKELY TO INCREASE

Japanese banks had been suffering sluggish lending demand as households and businesses remained cautious on spending amid prolonged deflationary trend. Bank lending fell 1.8 per cent in February, the 15^th month of decline, the Bank of Japan data shows.

Awash with deposit money, the banks had been buying up Japanese government bonds to make up a fall in profit from lending.

'We have been approached by companies which had not needed our loans up until now. We are very likely to accept pretty much all of these loan requests since most of these companies are those we wanted to have business with,' said a source at one of the top banks, who declined to be named.

Including the emergency lending for TEPCO, BTMU said it has received request for about 700 billion yen in new loans, Mizuho said it has been asked to provide about 900 billion yen in total.

Officials of SMBC were not immediately available but a source said the bank had requests for about 1 trillion yen in new loans, including 600 billion for TEPCO.

While the banks said they did not have comparative numbers, the loan requests - even excluding that by TEPCO- marked a jump from regular years, at least four or five times larger in volume, though the increase was not as dramatic as in the aftermath of the collapse of Lehman Brothers.

The total is equivalent to 3 per cent of the overall outstanding loans to major corporations by these banks, said the Nikkei, which reported the surge in the lending request.

The total loan demand is likely to be bigger since the banks said their figures were from large corporate clients only and those from small and mid-sized businesses have not been counted.

Nikkei cited officials at companies considering extra funding, such as Renesas Electronics Corp (6723.T), Taiheiyo Cement Corp. (5233.T), whose plants have been damaged by the disaster and All Nippon Airways Co (9202.T), bracing for a drop in demand for its passenger and cargo services.

Bulls turn bears on India as doubts grow

AFP, New Delhi, March 27: Investors have turned bearish on India despite government forecasts of nine per cent economic growth, as concerns over widespread corruption and high inflation knock confidence, analysts say.

Only a few months ago investors were pouring into Indian equities, seeing the country as a promising high-growth market and talking about the 'India story'. But now the mood looks to be on the turn.

The government's lack of progress on economic reform, massive corruption scandals including the cut-price sale of telecoms licences, and eight interest rate hikes to try to tame high inflation have all had an impact.

Citigroup economist Rohini Malkani said she had met some 50 investors in Singapore and Hong Kong this month and about 70 per cent were 'bearish on India'.

Fears about reduced investment in infrastructure, high inflation and the fallout from political scandals topped the list of investor worries, she said.

The Bombay Stock Exchange Sensitive Index or Sensex has dropped more than eight per cent this year, making it Asia's worst large market performer—after it climbed 17 per cent last year on the back of $29 billion poured in by foreign investors.

Foreign institutional investors sold $2 billion worth of shares in January and February.

'Concerns about stubbornly high inflation pushing up interest rates, a high current deficit fuelled by higher oil prices, and corporate and government corruption scandals have all contributed to the selling,' said Deepak Lalwani, head of London-based, India-focused investment consultancy Lalcap.

Market analysts expect that for the first half of 2011 at least, shares will continue to slide as the challenge of maintaining growth while cutting inflation, now at 8.3 per cent, proves increasingly tough.

India's central bank, the most aggressive in Asia in tightening monetary policy, lifted its benchmark borrowing rate to 6.75 per cent this month—its highest level in three years.

While the government projects nine per cent expansion for the next fiscal year starting April 1, most economists' forecasts are lower amid expectations the bank will raise rates further by as much 100 basis points, slowing investment and growth.

Credit Suisse economist Robert Prior-Wandesforde said he believed growth could decelerate to 7.7 per cent next year from 8.6 per cent in the current year as resurgent oil prices and rate rises take their toll.

Citigroup's Malkani said she had pencilled in a 'relatively optimistic 8.4 per cent' growth forecast but calculates that expansion under a worse-case scenario could be just 7.2 per cent if investment were to slump sharply.

On top of economic worries, concerns about governance loom large, with Prime Minister Manmohan Singh portrayed by the opposition as a weak leader presiding over a corrupt administration.

Global consultancy KPMG said in a report that 'corruption could be a major hurdle in India's growth story in the coming decade'.

'From what started as petty payments demanded by babus (civil servants) during the license raj days, corruption has taken a much larger form and scale,' said Deepankar Sanwalka, KPMG India's head of risk and compliance.

'It is not about petty bribes or 'bakshish' any more, but scams to the tune of billions of dollars that highlight a political-industry nexus which if not checked could have a far reaching impact.'

At the heart of corruption concerns is the once high-flying telecoms sector, with an ex-telecom minister alleged to have cost the treasury up to $40 billion by selling off mobile licences at low prices in exchange for kickbacks.

Graft is also rampant in property and construction, KPMG found.

'The corruption scandals which have paralysed government have tainted India's image as an investment destination,' said Lalcap's Lalwani.

'But foreign investors may benefit from many Indian businessmen's observation over the years that the country continues to grow—despite the government.'