By Junko Fujita, Bloomberg
Citigroup Inc. raised 1.45 trillion yen ($12 billion) in Japan’s largest syndicated loan to fund its purchase of Nikko Cordial Corp., said two bankers who were involved in the transaction.
Mizuho Financial Group Inc. agreed to lend 220 billion yen to Citigroup, which last week completed the acquisition of a 61% stake in Nikko Cordial, Japan’s third-largest brokerage, the bankers said. Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. each provided 200 billion yen. Deutsche Bank AG, JPMorgan Chase & Co., Aozora Bank Ltd., Shinsei Bank Ltd. and 12 other banks will lend the remaining amount, the bankers said.
The loan will enable New York-based Citigroup, the world’s biggest financial-services firm by market value, to complete the 920 billion yen investment and raise its stake by purchasing more shares. Analysts have said the US bank may seek to control two thirds of Tokyo-based Nikko Cordial so it can make merge or sell units without the consent of other shareholders.
The size of the loan is a signal of “Citigroup’s ambition is to gain a strong foothold in Japan,” said Naoko Nemoto, an analyst at Standard & Poor’s in Tokyo. “Citigroup wants to expand here.”
The loan is the largest in Japanese history, surpassing a 1.28 trillion yen borrowing last year by Softbank Corp., which bought Vodafone Plc’s Japanese unit to become the nation’s third-largest mobile phone operator. Citigroup has sold yen-denominated bonds previously. This is the first time the bank is borrowing yen in the loan market.
“This amount has a significant impact on Japan’s syndicated loan market,” said Nana Otsuki, a credit analyst at UBS Securities Japan Ltd. “For the loan providers, the fee would be significant even though the spread might be tight considering Citigroup’s credit.”
The bankers declined to provide details on Citigroup’s borrowing costs.
Japan has 45.4 trillion yen of syndicated loans outstanding in March, compared with 37.4 trillion yen a year earlier, according to the Bank of Japan. Some 10.3 trillion yen of borrowings were made between January and March, the central bank said.
Mika Nemoto, a Tokyo-based spokeswoman at Citigroup, declined to comment on the financing. Mizuho Corporate Bank Ltd. spokesman Misao Yoneyama declined to comment on details of the transaction. Deutsche Bank’s Tokyo-based spokeswoman Seiko Adachi said the German banking group is one of the banks extending loans to Citigroup, declining to provide details.
Spokespeople for Bank of Tokyo-Mitsubishi UFJ Ltd., Sumitomo Mitsui Banking Corp., JPMorgan, Shinsei Bank and Aozora Bank declined to comment.
Citigroup’s efforts to increase its holdings in Nikko have been hampered by shareholders including Chicago-based Harris Associates LP and Orbis Investment Management Ltd. in Bermuda who have refused to sell shares at the 1,700 yen offer price.
Gaining control of Nikko will give Citigroup 109 branches in the world’s second-largest economy, narrowing a gap with Mitsubishi UFJ Financial Group, Japan’s biggest bank.
The takeover will also enable it to expand investment banking operations in Japan through its joint venture with Nikko, as well as offer services such as wealth management to Nikko customers, who have a combined 40 trillion yen of assets.
Citigroup said on 27 April that it wants to purchase more shares in Nikko Cordial.
Citigroup said in January that it plans to set up a financial holding company in Japan by July, and added that it may seek approval to list shares on the Tokyo Stock Exchange later this year.
Japan’s Securities and Exchange Surveillance Commission on 18 December said Nikko Cordial overstated profit in documents related to a corporate bond sale in November 2005. That resulted in a 30% drop in the company’s share price in the seven-week period ended on 1 February. Nikko shares closed at 1,179 yen on 5 March, the day before Citigroup announced its initial takeover offer.
Citibank is not lending to its parent Citigroup because of US regulations which restrict lending between a banking group and its affiliates, the bankers said.
Citibank is rated Aaa, or the highest investment level, by Moody’s Investors Service. Citigroup is rated Aa1, or the second highest level, by Moody’s and one step lower at AA by Standard & Poor’s.