In Japan, Goldman, Fortress scout for runway, solar, infrastructure deals

TOKYO Wed Feb 26, 2014 2:47am IST

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TOKYO (Reuters) - Goldman Sachs Group Inc (GS.N) is considering putting money into a major Japanese airport, the latest foreign investor to eye infrastructure projects as Prime Minister Shinzo Abe seeks to open up the market.

The U.S. bank may invest in New Kansai International Airport, a regional hub in Osaka bay and the country's fifth-largest airport by passenger traffic, once operating rights are put up for sale, said Ankur Sahu, co-head of Goldman's Asia-Pacific merchant banking division.

The deal is expected to be Japan's biggest private infrastructure project - the rights could fetch up to 600 billion yen ($5.86 billion) - and Tokyo is keen for investors to help trim state-owned New Kansai International Airport Co's 1.2 trillion yen debt.

Other foreign names such as U.S. property investor Fortress Investment Group LLC (FIG.N) and Australian investment bank Macquarie Group Ltd (MQG.AX) are taking stakes in Japan's infrastructure sector - marking a vote of confidence in "Abenomics", which has recently been struggling.

Abe's policies to revive the world's third-biggest economy from 15 years of deflation and unsteady growth have hit headwinds as the recovery has slowed sharply and investors fret that a burst of monetary easing and fiscal stimulus are not being followed by structural reforms to make growth sustainable.

For now, foreign investors are focusing on airports and solar power, but the field could widen as more areas come open - Abe's government is considering selling operational rights at other airports, highways and sewage systems. In June, Abe targeted tripling Japan's private infrastructure investment to 12 trillion yen ($120 billion) over the following decade.

"The government has the highest incentive ever to attract private money to invest in public infrastructure because there is a huge list of projects that need to be done, and the government can't afford to finance them all," said Daiju Aoki, a senior economist at UBS Securities Japan.

LOOKING FOR OPPORTUNITIES

Infrastructure generates lower returns than investments that Goldman and Fortress have previously sought in Japan, but as the number of potential deals dwindles, they have started scouting for lower but stable long-term returns.

An official at Aichi Prefecture Road Public Corp, owned by the prefecture, said it has been sounding out potential bidders for rights to operate local highways.

Macquarie, a renowned infrastructure investor, abandoned a stake in a Japanese airport terminal building five years ago after a national controversy over whether foreigners should be allowed to own public infrastructure in Japan. Now, though, Japan appears more ready to let private investors make profits on infrastructure. Even before Abe took office, the government in 2011 revised laws on private finance initiatives, allowing private investors to control management of airports and a broader variety of public facilities.

The same year, Japan passed a law allowing private investors to buy rights to operate commercial facilities and runways at Osaka airport.

Goldman was once an aggressive corporate investor in Japan, ploughing into cash-strapped companies and turning them around for re-sale. The bank and other investors sold appliance maker Sanyo Electric Co to Panasonic Corp (6752.T) in 2008 and, in 2012, Goldman sold contractor Fujita Corp to homebuilder Daiwa House Industry Co (1925.T).

Now, the bank has set up a firm called Japan Renewable Energy, which builds and operates solar energy platforms, its most significant investment in Japan in a decade.

"In the past 10 years we were active in making equity investments in Japan. We are still looking for all possible opportunities, but we have made few investments," said Sahu, who led Goldman's investments in Sanyo and Fujita.

If Goldman invests in Kansai Airport, it would be part of a consortium as the deal would be so big, he said. The bank would use money from the $3.1 billion GS Infrastructure Partners II fund it launched in 2010, he said.

ALTERNATIVE ENERGY

Fortress, which has invested mainly in distressed loans and properties in Japan, is raising 200 billion yen from Japanese investors to set up a fund for infrastructure investments in Japan.

Japan's rapidly growing alternative energy market is attracting investors as the government encourages reliance on solar energy after shutting all the nation's 48 nuclear power plants in the wake of the Fukushima disaster in 2011. Tokyo introduced generous subsidies to encourage solar investment, sparking a development rush. For example, Equis Funds Group, a Singapore-based alternative energy investment firm, plans to raise $500 million over the next year to fund solar-energy projects in Japan.

Macquarie, which in 2009 sold a 20 percent stake in Japan Airport Terminal Co (9706.T), the operator of terminal buildings at Tokyo's Haneda Airport, back to the company after its ownership triggered a national backlash over foreign ownership, last year agreed to form an infrastructure joint venture with Japanese general contractor Maeda Corp (1824.T).

Other airports in Japan could go on the block after the government last year revised laws to allow the sale of rights to operate airports in other cities. Sendai Airport in northern Japan is expected to go up for sale this year.

Several domestic firms, such as a financial services company Orix Corp (8591.T) and mobile operator SoftBank Corp (9984.T) are also investing in renewable energy projects.

($1 = 102.6750 Japanese yen)

(Editing by Ian Geoghegan)

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