Japan pushes forward with risky first loan to Iraq

Author: Brian Yap | Published: 10 Apr 2017

A number of Japanese financial institutions have helped fund Iraq’s ministry of electricity (MoE) to fund the construction of 16 substations, ending a 31-year ban on lending to the Middle Eastern country. But the uncertainty which surrounds repayments has rendered such financing highly risky.   

The Japan Bank for International Cooperation (JBIC), Bank of Tokyo-Mitsubishi (BTMU) and Sumitomo Mitsui Banking (SMBC) are co-financing the JPY53 billion ($480 million) project, which is expected to help Iraq alleviate chronic power shortages.

Counsel with knowledge of the financing deal point to a special account recently established by JBIC, which is exempted from the constitutional requirement of ensuring certainty of repayment from borrowers. "The oil price and the increasing cost of war against Isil have caused a serious financial crisis in Iraq," said Naoki Ishikawa, partner at Mori Hamada &...