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Japan expands trade insurance with eye on infrastructure exports

Japan expands trade insurance with eye on infrastructure exports

TOKYO: The government-backed Nippon Export and Investment Insurance will more fully cover the exposure Japanese lenders face in financing companies in emerging countries, a measure aimed at boosting infrastructure exports.

When Japan exports infrastructure to emerging nations, companies from those countries often borrow from Japanese banks. For expensive projects, it is common for factory builders, trading houses and banks to offer equipment exports and financing together.

Financial institutions tack on trade insurance in case the loans become irrecoverable, with the borrowing company typically paying the premium. But when premiums become too costly for the borrower, banks lend more money to finance the fees. Currently, insurance does not cover financing for premiums, but NEXI’s new framework does.

A fertilizer factory in Uzbekistan to be handled by Mitsubishi Corp. and Mitsubishi Heavy Industries is slated as the first project to use the framework. The insurance will cover several billion yen (tens of millions of dollars) in premiums to be paid by participating Uzbek companies. Mitsubishi is aiming to sign the contract as early as this month and complete the plant by 2020.