Mitsubishi UFJ Financial Group is on the verge of buying US$6.4 billion (Dh23.5bn) of project finance assets from the Royal Bank of Scotland (RBS) as part of a determined expansion abroad being made by cash-rich Japanese lenders.
Faced with sluggish growth prospects at home, Japan's banks have stepped up efforts to grow overseas operations but their activities have been largely limited to Asia.
A deal with RBS would give Mitsubishi UFJ a strong foothold in lending for energy and other infrastructure projects in Europe, the Middle East and Africa.
For RBS, the sale would generate cash to repay taxpayers for a bailout in the financial crisis. The British government controls 84 per cent of the bank's voting rights and is pushing it to unload assets.
RBS and the UK government have been negotiating with the Japanese company about a portfolio of project-finance assets valued at about £4bn (Dh23.7bn), two informed sources said. No final agreement has been reached, they said.
Mitsubishi UFJ is taking advantage of the lender's retreat from project finance after raising ¥1 trillion (Dh45.44bn) in a share sale in December.
The purchase would add to the Japanese bank's acquisition of UnionBanCal in 2008 and this year's takeovers of two smaller US lenders, as the chief executive Katsunori Nagayasu seeks growth outside of Japan. "Japanese banks have long experience in project financing," said Kim Young-june at Woori Asset Management in Seoul. "It's the right direction for Mitsubishi UFJ as it's a field they know well and has great growth potential."
The RBS chief executive Stephen Hester is shrinking the bank, which in 2008 suffered the biggest annual loss in UK corporate history - more than £24bn.
Britain's biggest government-owned bank is selling assets including 318 UK bank branches and an insurance unit after receiving £45.5bn of government funding during the global financial crisis, more than any other bank in the world.
It placed some project finance assets in its "non-core" division and identified them for sale as part of its strategic plan, the bank said in February last year.
Mitsubishi UFJ, which took a one fifth stake in the US investment bank Morgan Stanley at the height the financial crisis and has been actively looking for more deals overseas, declined to say whether it was in talks with RBS. An RBS spokesman in London also declined to comment.
"No decision has been made. This is all we can say," said Tomohiro Kosaka, a spokesman for Mitsubishi UFJ.
Project finance, where banks arrange a mix of debt and equity to fund large industrial developments, can be a big earner for banks through the advising fees they charge.
RBS ranks fifth in global project financing so far this year, advising on a total $9.64bn worth of projects, according to Reuters data. Mitsibishi UFJ ranked 24th. Mitsubishi UFJ submitted a £4bn final offer last month and is expected to sign a deal with the British government by the end of the year, with an eye to completing the transaction in the first half of next year, The Nikkei newspaper reported yesterday.
Japanese banks have sought to increase their share of the global market for financing projects including nuclear power plants and water-supply systems as overseas rivals scarred by the credit crisis reduced costs and spending.
That push has been helped by the Japan Bank for International Co-operation (JBIC), the state-run agency that lends to overseas projects, often together with local banks.
* with Reuters and Bloomberg