Over three decades after Japan sent its first citizen into space, the country’s mega-banks are venturing into syndicated loans to support the fast-growing space industry, inspired by the government’s vision to grow the sector to ¥8trn (US$56bn) by 2030.
Having previously supported the sector through bilateral loans and venture capital, Mizuho Bank, MUFG and SMBC are turning to syndicated loans to sell down risk as financing needs from space companies increase.
The sector is likely to receive a boost from the Japanese government's decision to increase investments in start-ups to ¥10trn from ¥800bn in five years. Although that amount is for start-ups of all kinds, the space industry stands to benefit as the number of space start-ups has grown to more than 50 compared with around 10 five years ago, according to a note from the World Economic Forum in early June.
Japan has had an active space programme since the 1950s. In 2021, Prime Minister Fumio Kishida said the government aimed to achieve a lunar landing by a Japanese astronaut in the latter half of this decade. In 2014, the ministry of education, culture, sports, science and technology had said it was considering a space mission to Mars.
”I think the space business is a very attractive market,“ said Takayuki Umei, vice-president of the planning and business development group in SMBC’s growth business development department. “Technological innovations in the conventional rocket and satellite fields will create opportunities for various new businesses such as information utilisation and entertainment, and we expect that the industrial base will further expand in the future. In such growth areas, we believe that supporting the creation of businesses and the revitalisation and expansion of industries by utilising our customer base is a very important role of a bank.”
Launch pad for loans
SMBC has completed two bilateral loans totalling ¥3bn for space start-ups since April and expects to close four more deals totalling ¥9bn–¥10bn by the end of the year. The bank is working on a syndicated loan of about ¥1.5bn with warrants for a space company.
“Space start-ups are an area that requires a large amount of funds,” said Tomohide Kojima, manager of the innovative start-ups coordination department at Mizuho Bank. “The first mover can benefit from very large business opportunities and rapid business growth. As many financial institutions focus on the sector recently, Mizuho has also positioned it as a growth industry and we have been dedicated to it from an early stage.”
Mizuho established the department in 2016 and assigned a dedicated banker for the space sector in April 2022. Besides lending to space-related companies, the bank may also provide financing through a venture debt fund of about ¥10bn it is launching soon.
Meanwhile, MUFG, which has provided loans to the sector as a part of venture financing since 2019, established a space innovation team within its sustainable business division, investment and business development office at the end of May.
“I think the space industry and finance are very compatible,” said Hirofumi Kasahara, vice-president of MUFG’s new team. “Billions of yen are needed to build a single satellite, and billions of yen to launch a satellite. Syndicated loans offer advantages for both borrowers and lenders from the perspective of risk diversification when it is difficult for a single lender to fund. I have the impression that syndicated loans have increased recently.”
Last month, MUFG closed a ¥5bn five-year loan for Japanese space venture Synspective to build a constellation of 30 satellites. Mizuho Bank came in as co-arranger. Resona Bank and Shoko Chukin Bank joined in syndication.
The state-run Organization for Small & Medium Enterprises and Regional Innovation of Japan (SMRJ) is providing a guarantee for 50% of the financing under a scheme supporting private sector lending for deep-tech venture companies that the ministry of economy, trade and industry introduced two years ago.
“Support for start-ups is now the country’s top policy priority,” said Takashi Nakano, director of the credit guarantee support division at SMRJ‘s fund management department. “Providing loans to deep-tech start-ups, which was difficult for financial institutions in the past, has gained momentum. In order to back the lending efforts of private financial institutions, we rolled out the 50% guarantee scheme for such loans.”
SMRJ is in talks with dozens of start-ups from all sectors on the scheme, although in many cases it takes time to close financings from financial institutions. In the space sector, it has extended guarantees for three loans totalling ¥15bn so far, including a ¥5bn three-year facility for Japanese lunar robotic exploration company ispace in July 2022.
SMBC was the MLA of that borrowing, Japan’s first syndicated loan for a space venture, while Mizuho, MUFG and Shoko Chukin came in as co-arrangers, and Shizuoka Bank joined as participant.
While few lenders have the capacity to assess and absorb the risks that the sector poses as yet, more banks and leasing companies are showing appetite to get a slice of the pie as such loans pay more than other lucrative forms of debt such as project or leveraged buyout loans.
"More regional banks, which have a certain track record in lending to space ventures, are willing to join deals where they can get appropriate pricing," Mizuho's Kojima said.