TOYOTA IN TALKS TO ACCESS JBIC LOAN FACILITY

UNCLAS SECTION 01 OF 03 TOKYO 000515

SENSITIVE
SIPDIS

STATE FOR EAP/J, EEB/TRA, EEB/TTP/MTAA FOR B. NAFZIGER
STATE PASS USTR FOR AUSTR CUTLER, M BEEMAN, R MALMROSE
DEPARTMENT OF COMMERCE FOR K ROTH AND D BARZDUKAS

E.O. 12958: N/A
TAGS: EIND ETRD SENV PREL WTO EFIN ENRG JA
SUBJECT: TOYOTA IN TALKS TO ACCESS JBIC LOAN FACILITY

REF: A. TOKYO 345

B. TOKYO 228

Sensitive But Unclassified. Contains Proprietary Information.


1. (SBU) Summary: Toyota Financial Services, the Japanese
automaker's financing arm, reportedly has requested $2
billion from the Japan Bank for International Cooperation
(JBIC) to support its financing operations in the U.S. JBIC
officials told emboffs March 6 its recently launched lending
facility for Japanese companies' operations in developed
countries, one of several GOJ responses to global financial
turmoil, is primarily intended to complement private lending
and assist Japanese firms having trouble raising dollars due
to the seizing up of capital markets. Separately, a Toyota
official suggested the firm is seeking JBIC support in an
attempt to secure funds at rates comparable to those received
by U.S. auto firms through USG assistance -- rates that are
not otherwise available through private financial
institutions. End summary.

JBIC Loan Facility
--------------


2. (U) Following an administrative reorganization effective
October 2008, JBIC -- Japan's equivalent of the Export-Import
Bank and Overseas Private Investment Corporation --
officially ceased lending for most projects in developed
countries. The shift in JBIC's scope of operations came as
part of a longer term move by the GOJ to decrease the
availability of programs in industrialized countries where it
was assured firms could obtain financing from private
lenders. However, following instructions from then-Finance
Minister Shoichi Nakagawa to examine ways to facilitate JBIC
support for Japanese companies in need of dollar financing
due to the global economic crisis, the GOJ issued a Cabinet
Order December 26 that enabled JBIC to provide loans and
guarantees under the Japan Finance Corporation Law. This
provision allows JBIC to fund developed country loans in the
event of financial turmoil. The JBIC received inquiries from
several companies following the December order (ref A),
according to media reports.


3. (U) Under terms announced by the Finance Ministry January
27, JBIC is authorized to fund business operations of
Japanese firms or local subsidiaries in 22 industrialized
countries, including the U.S. The facility, which runs
through March 2010, requires co-financing with private banks,
and JBIC can lend up to 60 percent of the total co-financed
amount for large firms or 70 percent for small and medium
enterprises. The loans are to have a maturity of one to five
years (short-term lending of less than one year is not
eligible under the Japan Finance Corporation Law) at an
interest rate no lower than that offered by the co-financing
institution.


4. (SBU) In early February, JBIC identified five types of
situations in which it would consider financing, including:
(1) a need to obtain long-term financing to cope with
increased inventories or deteriorated earnings due to a
decline in sales; (2) to finance replacement capital
equipment; (3) funding for capital investment or acquisitions
for contracts signed by January 27, 2009; (4) to finance the
acquisition of the portion of equity stakes in a foreign
joint venture where the foreign investment partner has
withdrawn; and (5) to refinance long-term debt (e.g., as
corporate bonds reach maturity). The JBIC is currently
working with the Ministry of Finance to further clarify
requirements to obtain eligible funding.


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5. (SBU) The GOJ plans to lend JBIC around 5 billion dollars
from its Foreign Exchange Fund Special Account by the end of
March, State Minister for Economic and Fiscal Policy and
Finance Minister Kaoru Yosano reportedly told a press
conference March 4. The JBIC issues roughly 80-90 percent of
its loans in dollars. Officials at JBIC with whom we spoke
said the loan facility is intended to support as many as
50-60 companies rather than just a few large firms.


6. (SBU) The purpose of the loan facility, JBIC officials
told emboffs March 6, is a temporary response to liquidity
problems facing firms due to the freezing of commercial paper
and other financial markets, rather than an inability of
firms to raise capital due to poor creditworthiness. He
asserted the loan facility is designed to complement, not
replace, private lending. The JBIC expects companies to have
negotiated terms with a private lender before approaching
JBIC jointly for additional financing. Since the underlying
issue is liquidity, not solvency, JBIC does not expect to
guarantee the private sector loans.

Toyota Seeks JBIC Loan
--------------


7. (SBU) According to media sources, Toyota Corporation
seeks 200 billion yen (approximately $2 billion) from the
JBIC program. Although he would not confirm the amount of
the loan, a 200 billion yen loan would cover only a small
portion of Toyota's operational costs in the U.S., a senior
Toyota corporate auditor told emboff March 6. Since the U.S.
is Toyota's principal market, the loan, if secured, would be
used for U.S. operations, he explained.


8. (SBU) Approximately 70 percent of Toyota customers in the
U.S. use loans -- either from financial institutions or
Toyota's U.S. subsidiary, Toyota Motor Credit Corporation
(TMCC) -- to purchase new vehicles, said this Toyota
official. With virtually all private commercial lending
having dried up in the U.S., TMCC has been forced is pick up
the slack. Even for Toyota, the world's largest automaker,
it has become difficult to secure the necessary volume of
loans. Toyota's three trillion yen (approximately $300
billion) in cash is insufficient to cover its operations, the
official claimed. Higher borrowing costs, he continued, have
further exacerbated Toyota's difficulty obtaining affordable
loans from U.S. banks. As a result, Toyota is taking
measures to secure necessary funds, including from
government-owned banks, he explained.


9. (SBU) In contrast, the U.S. Big Three can secure
operating funds at a lower interest rate by receiving
assistance from the USG, our Toyota contact contended.
Although Toyota is still healthy, its costs to fund U.S.
operations are growing. Toyota approached USG financial
institutions, including the Federal Deposit Insurance
Corporation (FDIC),to request help in obtaining loans with
an interest rate comparable that received by U.S. automakers,
but was refused. The Toyota official said Toyota understands
the issue is very complicated and that the company will not
receive the same kind of support from the USG as the Big
Three. However, he continued, Toyota would be grateful if it
could receive USG support, based on the volume of vehicles it
manufactures in the U.S. (1.7 million units in its peak year
of 2007) and on-going efforts to avoid layoffs at its U.S.
facilities. (Note: In 2007, Toyota directly employed 36,866
people in the U.S. End note.)


10. (SBU) Mission will continue to keep a close watch on
this and other assistance efforts to assess their overall
effect and impact.

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11. (U) Consulate Nagoya contributed to this cable.
ZUMWALT