MUFG in talks to arrange new debt swaps after $465 million deal

Japan Times

3 days ago

Mitsubishi UFJ Financial Group (MUFG) is in talks with a number of governments as it seeks to build a pipeline of swaps to help developing nations refinance debt and free up funds for social and infrastructure projects.
Japan's biggest bank is looking to expand its presence in the market for debt swaps after helping to wrap up a €400 million ($465 million; ¥69.2 billion) deal for Cote d'Ivoire in December. Following that transaction, MUFG is now "engaging with a number of borrowers on similar structures,' Ankit Khandelwal, the bank's head of Africa sovereigns, development finance institutions and blended finance, said in an interview.
The expectation is that the December deal will serve as a "catalyst for a lot more of these transactions going forward, not just in Africa,' Khandelwal said in an interview.
The swap designed for Cote d'Ivoire was backed by a guarantee from the International Bank for Reconstruction and Development (IBRD), marking the World Bank Group's first venture into the commercial debt swaps market.
Such deals are increasingly being pitched by global banks as a way for emerging markets to alleviate their debt burdens and put savings toward sustainable goals such as marine conservation, health or education. Though still small, with around $4.5 billion in new debt issued, the market has the potential to grow to $800 billion over time, analysts at Barclays have estimated.
Banks to have entered the market in the past year alone include JPMorgan Chase and Standard Chartered, as well as MUFG. Such debt swaps are "super important instruments,' according to Marine de Bazelaire, former group adviser on natural capital and European head of sustainability at HSBC Holdings. That's especially true "because the debt burden of quite a lot of countries is going to get even higher with the new U.S. administration,' she added.
In the Cote d'Ivoire deal, the country bought back €400 million of commercial bank debt, which was then swapped for a longer-term loan of the same size but with a lower interest rate. MUFG provided the loan, which was backed by the IBRD guarantee.
The deal is expected to free up around €330 million in budget resources over the next five years and generate savings of at least €60 million in net present value terms, according to the World Bank. Those funds will be allocated to education projects. The interest rate on the new loan and the fees associated with the transaction haven't been disclosed.
Such deals represent "an alternative to manage the debt servicing burden on countries while channeling savings into productive assets,' Khandelwal said.
The U.S. International Development Finance Corp. has so far regularly provided credit enhancement for such transactions alongside the Inter-American Development Bank, of which the United States is a major shareholder. After a flurry of swaps in late 2024, no deals have been struck so far in 2025 as U.S. President Donald Trump rolls back large parts of America's international development program.
"Because of the election outcome and the political reality in the U.S., the market has slowed down, but we expect it to regain momentum in some shape or form,' Khandelwal said. "We are expecting more deals to come through this year and beyond.'
Countries can benefit from the flexibility of debt swap structures, Khandelwal said. Linking savings to measurable key performance indicators "is a good use in my view,' he said. Those projects could include health, water or education. "It's not a pre-baked solution, so long as the savings are channeled into a sector that is aligned to the developmental plan of the country,' he said.