Monday, July 1, 2013

Mitsubishi Trading, Japanese and Canadian Pension Funds and Japanese Government Bank to Buy Up Large Infrastructure in the US and Europe

Not the Lincoln Center or Pebble Beach Golf Club this time. The Japanese have learned from these huge loss-incurring vanity investments; this time they will focus on large infrastructure (power plants, railroads, airports, power grids, etc.) in advanced countries in the US and Europe that will provide steady revenue stream (or so they think) in stronger currencies than Japanese yen.

And this time, they have two huge pensions as investors - one Canadian (Ontario Municipal Employees Retirement System, or OMERS, with over 55 billion dollars in assets), one Japanese (Pension Fund Association, with 10.58 trillion yen (106 billion dollars) in assets). Even if they lose on the investment, it's none of their money anyway but the money due workers in the future.

All I can think of, reading this news, is an ad I saw on the back page of the alumni magazine of my school (in the US). I believe it was by Morgan Stanley wealth management group, showing the iconic photograph of the Bixby Bridge in California's Big Sur and urging wealthy alumni to invest with them in the vital infrastructure around the globe.

I think it was a year or so before the spectacular collapse of the world financial system triggered by the bankruptcy of Lehman Brothers in 2008.

So the Japanese are at least 6 years behind the curve. That's about right, with everything else from so-called "Abenomics" to "QE from another dimension".

Looking at the organizational chart of Global Strategic Investment Alliance (GSIA), for Mitsubishi Trading to say it "joined" is stretching the truth. It looks apparent that Mitsubishi will act as the secretariat of the whole investment alliance, by forming a separate management company with Mizuho Corporate Bank and Japan Bank for International Cooperation (100% funded by the Japanese government).

So the whole scheme is approved and promoted by the Japanese national government.

GSIA's first purchase, according to Nikkei Shinbun (7/2/2013), will be a thermal power plant in the State of Michigan in the US, for 200 billion yen (2 billion US dollars). GSIA will fund the half of the purchase with project financing, and the rest of the purchase will be funded by the investors (i.e. the two pension funds). According to Nikkei, GSIA is expecting 10% return each year through long-term electricity sales agreements with users that will include Dow Chemical.

If the infrastructure investments that have gone terribly wrong in the past 10 years in the US are any guide, there will be US investment banks on the other side, and probably a joint venture between the local municipality and GSIA will be formed which will operate the power plant. The power plant is likely to be beefed up, renovated with costly technologies, beyond the needs of the municipality and its customers, and the utility bill will be increased significantly. Project financing will probably involve interest rate swap agreements with the US investment banks, and sooner or later the swap will turn favorable to the investment bank and against GSIA. The return may not be 10% as they hope, and a much lower return may trigger an event that will require more collateral from the investors.

Have fun, GSIA. Maybe this time will be different. I assume Canada's OMERS knows what it is doing.


Anonymous said...

OMERS is also a 1/3 partner in the Bruce Nuclear Generating Station on Lake Huron.

VyseLegendaire said...

If you think OMERS knows what its doing, then I have a CDS worth 500% a year to sell you.

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