New era of Saudi-Japan relations

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RIYADH: Leading Japanese bank Mizuho Financial Group, Inc. and state-owned Saudi Arabian Oil Co. (Saudi Aramco) have signed a major agreement for business cooperation with an aim to support Japanese companies investing in the Kingdom. The move will go a long way in expanding ties between the Kingdom and Japan, especially in energy sector.

“With the memorandum of understanding, Mizuho, the sole Japanese bank to have an office in Saudi Arabia, will work more closely with the Kingdom and provide enhanced support to Aramco, which works to transform its business portfolio,” the Tokyo-based financial group said in a press statement, while referring to the visit of Deputy Crown Prince Mohammed bin Salman to Tokyo.

The statement said that “Mizuho will use Aramco’s knowhow and network to introduce Japanese companies, in particular SMEs and middle-marketers which have unique technological advantages, to Aramco and other Saudi companies as their business partners.”

Saudi Arabia is currently promoting the national growth strategy called “Saudi Vision 2030” and Aramco is enhancing its business especially in the fields of renewable energy, privatization and capital markets.


“Under the vision as announced by the deputy crown prince, Saudi Arabia goes full speed to promote privatization of state-owned companies and sophistication and diversification of industries,” the bank said.

It also pointed out that the Middle East North Africa region has large potential with over 600 million population and Saudi Arabia in particular is expected to see rapid growth in near future.

On the other hand, Mitsubishi UFJ Financial Group Inc.’s banking unit and its two biggest Japanese peers plan to endorse a non-binding agreement with Saudi Aramco to expand lending to the state-run firm as it considers an initial public offering. Bank of Tokyo-Mitsubishi UFJ Ltd. President Takashi Oyamada and Sumitomo Mitsui Financial Group Inc. Chairman Masayuki Oku are expected to agree to a memorandum of understanding in Tokyo with executives of the Saudi Aramco, according to reports.

Tokyo-based lenders are seeking to get involved in Aramco’s IPO, according to reports published in a section of Japanese press. Japan’s Trade Ministry has asked the oil company to list its shares on the Tokyo Stock Exchange. MUFG and its rivals are accelerating efforts to grab larger clients abroad like Aramco to counter slowing loan demand and shrinking interest rates at home.

These developments are very important for the energy market and for Saudi-Japan ties as the deputy crown prince wraps up his visit to Japan and China this week, giving the Asian nations an opportunity to deepen energy ties as the Kingdom prepares what could be the biggest IPO ever. Aramco and Japanese government officials plan to discuss a potential Tokyo listing soon.

The banks are eyeing increased business in Saudi Arabia as Aramco diversifies its portfolio into alternative energy and Japanese companies race to provide technology and services. But according to people close to the discussions, the underlying aim of Japan’s financial titans — Mitsubishi UFJ, Sumitomo Mitsui Financial Group and Mizuho Financial — is to negotiate themselves closer to the world’s largest oil exporter and use tighter business ties as a springboard to greater involvement in its planned IPO.

On the other hand, Saudi Aramco and the Japanese government are set to agree on a massive expansion of crude oil storage capacity in Okinawa, used by the state-run firm to store oil, Saudi Aramco CEO Amin H. Nasser said Thursday. In return for providing free storage space, Japan gets a priority claim on the stockpiles in case of an emergency.

“It would be in the best interest for Saudi Aramco and Japan to increase the capacity,” Nasser told reporters in Tokyo. “We are looking at a couple of million (barrels) more than what we have now.”

A senior Japanese government spokesman confirmed the two sides had agreed to expand and extend the current storage deal, though details had not been decided. The deal is set to be signed in October.

Japan treats the crude oil stored at Okinawa as quasi-government oil reserves, counting 50 percent of the barrels stored by Aramco and ADNOC as national crude reserves.

Saudi Aramco has stored crude in Okinawa since February 2011, and has used the facility to supply crude oil to China, Japan and South Korea among others.

The storage pact comes as part of a broad cooperation agreement between Prince Mohammed and Japan’s Prime Minister Shinzo Abe, who met Thursday to discuss the Kingdom’s drive to cut its reliance on crude oil exports among other issues. The two nations also agreed to set up a ministerial forum, called “joint group for Japan Saudi Vision 2030”, to discuss their collaborations.

The collaboration will mainly focus on industry, finance and energy to contribute to Japan’s growth strategy led by Abe as well as the Kingdom’s economic reforms driven by the deputy crown prince.

The first meeting will be held in Riyadh in October. Under the agreement, the Kingdom’s top sovereign wealth fund Public Investment Fund (PIF) and state-owned Japan Bank for International Cooperation (JBIC) and state-backed Innovation Network Corporation of Japan (INCJ) will also consider jointly investing in, and jointly financing, projects.

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