Privatizing DBJ｜Development Bank of Japan Inc.

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Privatizing DBJ

Development Bank of Japan Inc. was established on October 1, 2008. Under the terms of the Development Bank of Japan Inc. Law (Law No. 85, 2007; the ”New DBJ Law”) approved by the Japanese Diet on June 6, 2007 as part of the Law on the Promotion of Administrative Reform to Bring About a Simple and Efficient Government (Law No. 47,2006; the ”Administrative Reform Promotion Law”) and the fundamental reform of policy-based finance, DBJ, upon its establishment, took over all assets of the Development Bank of Japan (the “predecessor”) as investment in kind, with the exception of assets transferred to the government under the provisions of Article 15, Paragraph 2, of the Appendix to the New DBJ Law. Under Article 15, Paragraph 1, of the same law, DBJ also assumed all rights and obligations of the predecessor, with the exception of assets transferred to the government under Article 15, Paragraph 2, of the Appendix to the New DBJ Law.

DBJ has instituted emergency measures to deal with the global financial and economic crisis which began in the autumn of 2008. On June 26, 2009, the Diet passed the Law for Partial Amendment of the Development Bank of Japan Inc. Law (”Revised DBJ Law”), which, by extending the government’s investment period to the end of March 2012, enables DBJ to strengthen its financial base in line with the economic crisis measures announced in April 2009.

Under the New DBJ Law, DBJ was to have achieved full privatization within five to seven years after its establishment. With the law’s revision, the target date has been extended to five to seven years after the end of the investment period mentioned above. At the end of fiscal year 2011, the government plans a review of DBJ’s organization which will include the future of government-held shares. The government will continue to hold its shares until then.

Reference 1: New DBJ Law (after the amendment pursuant to the Law for Partial Amendment of the Development Bank of Japan Inc. Law)

Disposition of Government-Owned Shares
Article 2
1. Pursuant to Article 6, Paragraph 2 of the Law Concerning Promotion of Administrative Reform for Realizing the Simple and Effective Government (Law No. 47 of 2006, as amended), the Government shall make efforts to reduce the number of shares held by it in the Corporation (hereinafter in the following Paragraph and the immediately following Article referred to as ”Government-Owned Shares”), taking into account the market situation, and shall dispose all of them in approximately five to seven years from April 1, 2012.

Government Investment
Article 2-2
During the period ending March 31, 2012, the Government may invest in the Corporation as it deems necessary within the limits set by its budget.

Delivery of Government Bonds
Article 2-3
1. During the period ending March 31, 2012, the Government, in implementing the crisis response business specified in Article 2,item 5 of the Japan Finance Corporation Law (Law No. 57 of 2007; hereinafter ”Crisis Response Business”) may issue government bonds in order to secure the capital required to ensure the soundness of the Corporation’s finances.

Supplementary Provisions of the Law for Partial Amendment of the Development Bank of Japan Inc. Law
Deliberation
Article 2
1. By the end of fiscal year 2011, the Government shall review the organization of the Corporation, taking into account the status of investments in Development Bank of Japan Inc. (hereinafter ”the Corporation”) under the provisions of Article 2-2 of the Supplementary Provisions to the Development Bank of Japan Inc. Law as amended by this Law; the redemption of Government bonds under the provisions of Article 2-4, Paragraph 2 of the same Supplementary Provisions; the conduct of crisis response Business by the Corporation (this refers to Crisis Response Business conducted under the provisions of Article 2, Item 5 of the Japan Finance Corporation Law (Law No. 57 of 2007); same hereinafter); and changes in socioeconomic and other circumstances. This review, from a point of view of the Government’s practice of maintaining a certain level of involvement in the Corporation, such as by consistently holding more than one-third of the Corporation’s issued shares, is meant to ensure that the Corporation’s Crisis Response Business are properly implemented; it shall include a consideration of the Corporation’s Crisis Response Business and, based on that, of the Government’s holding of stock in the Corporation. The Government shall take necessary measures based on its findings.

2. Notwithstanding the provisions of Article 6, Paragraph 2 of the Law on Promotion of Administrative Reform for Realizing Simple and Efficient Government (Law No. 47 of 2006) as amended under the provisions of the following Article (the ”Administrative Reform Promotion Law”) and of Article 2, Paragraph 1 of the Supplementary Provisions to the Development Bank of Japan Inc. Law as amended by this Law, the Government shall not dispose of its shares in the Corporation prior to taking the measures described in the preceding paragraph.

Reference 2: The Law Concerning Promotion of Administrative Reform for Realizing the Simple and Effective Government (after the amendment pursuant to the Law for Partial Amendment of the Development Bank of Japan Inc. Law)

Status of the Shoko Chukin Bank Limited and the Development Bank of Japan Inc.
Article 6
Full-scale privatization is prescribed for the Shoko Chukin Bank and Development Bank of Japan Inc. and measures to this effect shall be taken in fiscal year 2008 to minimize Government involvement while maintaining the autonomy of management.
2. The Government shall invest in the Shoko Chukin Bank and Development Bank of Japan, Inc. taking into account the market situation, and shall dispose all such investments in approximately five to seven years from April 1, 2012.
3. The Government shall, with regard to full-scale privatization as provided in Paragraph 1, take measures to ensure the financial bases that are necessary to the smooth operations of the Shoko Chukin Bank and Development Bank of Japan Inc. At the same time, necessary measures shall be taken to ensure maintenance of the foundations of the financial functions for members of small and medium-sized enterprise cooperatives and other organizations composed of small and medium-sized corporate members that belong to the Shoko Chukin Bank and investment and financing functions of Development Bank of Japan Inc. for long-term business funds.

Reference 3: Supplementary Resolutions

Supplementary Resolutions on the Bill for Partial Amendment of the Development Bank of Japan Inc. Law
House of Councilors Committee on Financial Affairs
June 25, 2009

The following matters should receive the Government’s careful consideration.
・In implementing Crisis Response Business based on the recent measures for additional investment, Development Bank of Japan Inc. shall ensure the measures result in a smooth supply of funds on the basis of appropriate analysis by drawing upon its accumulated knowledge and skills.
・With the global monetary crisis having serious economic and financial impacts, and the balance of loans to small and medium enterprises falling steadily, efforts must be made to further facilitate loans by the Japan Finance Corporation to small and medium-sized businesses. In implementing Crisis Response Business for large and midscale enterprises, Development Bank of Japan Inc. must be certain to expedite loans to associated small and medium enterprises as well.
・The Government should review its holding of shares in Development Bank of Japan Inc. and take necessary measures based on its findings. Any such deliberations should take into account the need to ensure that the Corporation acts for the good of the community, that it has a stable source of the funds required to fulfill its functions as a provider of long-term investment and loans, and that it has systems in place to secure competitive officers and employees. The Government should take appropriate measures to prevent any damage to the Corporation’s long-term value.
・The Government should reassess the future provision of policy-based finance by Development Bank of Japan Inc. and the Japan　Finance Corporation, reaffirming the importance of their roles and　functions and paying attention to their relationships not only with private financial institutions but also with the Japanese financial sector as a whole, including affiliated organizations and the Japan Post Bank.
Resolutions passed.

The Face of the New Privatized DBJ

Based on its corporate philosophy of "applying financial expertise to design the future," the new DBJ Mission is "to build customer trust and realize an affluent society by problem-solving through creative financial activities." Based on the New DBJ Law, the Bank will provide integrated investment and loan services.

Financing: Provision of medium- and long-term financing, as well as project financing and other forms of structured subordinated financing
Investing: Provision of mezzanine and equity financing
Consulting/Advisory Services: Arrangement of structured financing, provision of M&A advisory services, applying DBJ's industry research function and expertise in environmental and technical evaluations

FAQ

What is New DBJ's corporate philosophy?: Occasioned by privatization, DBJ has created the new corporate philosophy of "Applying financial expertise to design the future" and established new goals. This philosophy expresses our conviction that creative financing is the key to solving problems, building the trust of our clients and achieving future prosperity.
While retaining the identity that DBJ has built for itself, this corporate philosophy clearly outlines the qualities that we will develop as a private-sector company. Our enthusiasm for the new vistas that will open to us as a private-sector company is inherent in the phrase "design the future."
Can you be more specific about DBJ's business model?: Upon privatization, DBJ aims to operate on the business model of a highly specialized financial institution that provides integrated investment and loan services.
In the past, long-term lending operations have been the core of DBJ's business. In response to the increasingly diverse customer needs that have arisen in recent years, we plan to increase our involvement in business that takes advantage of our screening expertise on long-term projects, as well as structured financing and fund investment. After privatization, we will enhance our investment and financing functions, providing a wide range of services that contain facets of both.
In addition to providing new M&A advisory services, consulting and other information services, we intend to mold ourselves into a financial institution that provides specific value to its customers.
Tell us about your community initiatives.: Along with the environment and technology, DBJ positions community initiatives as one of its three pillars of business. After privatization as well, we will respond to the business succession needs of medium-sized local companies, conduct M&A activities employing our networks that cover a broad range of key industries, and respond to customer needs through business revitalization initiatives that leverage our relationships with local financial institutions.
Will the new DBJ conduct business overseas?: Given that many of our customers have global operations, we believe that taking a multifaceted approach to their needs will make overseas business an inevitable development for us. As we are not legally restricted from conducting business overseas, we consider international business within our scope.
As a designated financial institution, what will become of your crisis response (safety net) business?: Under the Japan Public Finance Corporation Law, certain financial institutions are designated to provide credit in the event of natural disaster and other crises, and DBJ is so designated. Such institutions receive credit from the Japan Public Finance Corporation, which they employ to provide loans. As a designated financial institution, we plan to continue providing such loans as we apply our expertise in this area to crisis response operations.
Please describe your future fund-raising efforts.: We will develop a medium- to long-term fund-raising platform concentrating on corporate bonds. We will round out these efforts with diverse methods to raise funds in a stable and efficient manner, such as by borrowing from other financial institutions.
What type of enterprise will it be?: At the end of fiscal year 2011, the government plans a review of DBJ’s organization which will include the future of government-held shares.