Reconstruction: ‘Rebuilding takes more than money’

Soon after the tsunami that devastated Japan’s northeastern coast last year, Tomoaki Tsutsumi, a Tokyo-based fund manager, gathered his 10 employees and set out for the disaster zone.

Like thousands of volunteers from around the country, the group from Keystone Partners spent days distributing rice and water to homeless survivors.

“It was a shock to see that people were only getting three hot meals a week,” Mr Tsutsumi remembers.

Later, he helped organise a pop concert and used connections at a trading company to source rare Vietnamese dragon fruit to break the monotony of evacuation-shelter rations.

“At first, the focus is on life and death. But, before long, stress and boredom set in.”

Before he became a money manager, Mr Tsutsumi was a world-champion yacht racer, and it was not long before his activities in the disaster zone landed his name in a Japanese newspaper.

That, he says, was when local business owners started sending him requests for help – not with tropical fruit or concerts, but for financing for their reeling companies.

“They were dealing with tsunami damage, electricity shortages and scrambled supply chains,” he says. Keystone, which was founded in 2009 and manages about Y10bn of assets, has since invested in two businesses in the region, an operator of hotels and ski resorts and a delivery company.

“Ultimately, the question was, what could we contribute as a fund?”

On the whole, money is not scarce in the tsunami zone. Since the waves hit 18 months ago, killing nearly 20,000 people and wiping out towns and villages along a 300km stretch of coast, the government has committed vast financial resources to reconstruction.

About Y5tn is available to businesses, farms and other enterprises in the form of low- or no-interest loans and loan guarantees from state-affiliated banks.

That has left relatively little room for the private financial sector to back rebuilding efforts.

But there are some areas where the industry has found ways to get involved.

In addition to smaller funds such as Keystone, heavyweights such as Nomura Asset Management and Daiwa Asset Management have set up special funds to invest in the region.

One area where they have found a need is bridging loans.

Despite the wealth of aid available to local businesses, the huge number of applicants means it can take months to process and deliver it.

Even if money has been promised by a state-backed bank, rules forbid recipients using the promise as collateral for private loans, a situation that can lead to potentially business-wrecking funding gaps.

That was the case with the delivery company in which Mr Tsutsumi invested.

Orders had started to pick up as reconstruction efforts accelerated, and it needed operating capital to meet the increase in business.

Government aid was months away, so Keystone agreed to provide a bridging loan of Y1bn, which has since been repaid.

Some enterprises suffered indirect damage from the disaster yet do not meet the criteria for state aid. In the tourism industry, business fell off even in areas where infrastructure remained intact, as travellers were turned off by images of suffering and gloom and concerns about radiation from the Fukushima nuclear site.

The ski and hotel company turned to Keystone for a Y500m loan when it was turned down by public institutions.

Keystone is backed by Japanese banks, pension funds and Mitsubishi Corporation, the trading and investment house, and is planning a second fund that will be open to foreign investors.

Mr Tsutsumi says he is charging market rates on his loans to the two groups in the disaster zone, but allows some flexibility in repayment schedules to account for their strained circumstances.

Other funds have taken a more overtly charitable approach. Music Securities, an innovative microlending outfit that raises money for struggling bands and singers, set up a fund for small businesses in the tsunami-hit region.

So far, it has raised Y854m from 24,000 people; half the money is donated, and the other half earns a return if and when the businesses recover.

Investors can choose the companies they want to support. On Music’s web site, visitors can browse profiles of sake breweries, fish shops and soy sauce makers, make a donation-cum-investment – in increments of Y10,000 plus a Y500 management fee – and, in some cases, order the companies’ products.

Mr Tsutsumi says the biggest obstacle to reconstruction finance, both public and private, is the lack of an overall recovery plan for the region.

The rural area’s population was already shrinking and ageing before the disaster, and there is still no consensus about which parts should be restored and how.

“You can’t just stick a factory in the middle of a flattened town,” Mr Tsutsumi says.

“Some local businesses had only a handful of employees with specialised knowledge, and they’ve disappeared or moved away. Rebuilding takes more than money.”

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