The Bank of Japan (BOJ) announced last month that it would hike interest rates for the first time in 17 years, signalling a paradigm shift in its approach to monetary policy. With a sustainable inflation rate of 2% within sight, Japan’s central bank raised its interest rate target on overnight loans for the first time since 2007, from between –0.1% and zero to between zero and 0.1%.
The BOJ became the final central bank to scrap a negative interest rate policy, ultimately abandoning its radical monetary policy experiment targeted at dragging Japan’s economy out of stagnation and deflation.
Prior to the seismic shift, speculation of the move gave onlookers a glimpse of hope that the BOJ’s changes had the potential to coax more investors towards Japanese government bonds over their foreign counterparts. However, observers now worry that this optimism may have been premature, ignoring critical domestic and foreign factors that could have an inhibiting impact on Japan’s policy shift.
The resulting uncertainty over the future of the world’s fourth-largest economy poses a slew of challenges for businesses operating in Japan. But this nuanced environment has also presented interesting opportunities for alternative asset manager Uni-Asia Group CHJ , which remains firmly rooted in its Japanese origins.
Started by four Japanese co-founders in 1997, the company has forged a speciality in niche assets within the shipping and property markets. Around 60% of Uni-Asia’s portfolio is in vessels, with another 20% to 30% in property investments in Hong Kong and Japan.
Whether or not the BOJ’s about-turn augurs well for Japan’s long-awaited economic revival, the company plans to increase its property exposure in the country over the coming years, says Uni-Asia Group’s CFO Lim Kai Ching in an interview with The Edge Singapore.
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According to Lim, Uni-Asia’s strength is in smaller projects which have less significant exposure to interest rate fluctuations, cushioned by the “magnitude of borrowings” the alternative asset manager has in Japanese yen.
Lim notes that the borrowing rate of Japanese yen remains “manageable” relative to other global currencies, especially when compared to the US dollar. “From an interest rate perspective, I believe Japanese yen and investments in Japan are still very attractive,” he says.
Right place, right time
To accelerate its growth in Japan beyond its core segment of small residential property development, such as its Alero projects in Tokyo, Uni-Asia has begun focusing on the timely — and necessary — arrival of sustainable initiatives from the Japanese government.
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Notably, the asset manager’s recent projects in Japan already emphasise a commitment to drive progress to achieve environmental, social and governance (ESG) objectives through a sustainability-focused model.
For instance, Uni-Asia Capital (Japan) (UACJ), the company’s Japanese subsidiary, made a JPY100 million investment in Godo Kaisha GH Property in 2021, establishing a real estate development fund to operate five group homes for persons with disabilities.
Lim says the fund is in line with the company’s commitment to good corporate citizenship and sustainable business practices, and its belief in creating shared value and improving the impact of its businesses on society.
UACJ also recently started managing three solar power assets in Tochigi Prefecture, with the first power plant starting electricity generation in December. Growth remains robust in Japan’s solar energy market, which was valued at US$14.6 billion ($19.9 billion) in 2023. The country’s solar power industry is forecast to reach a market size of US$26.8 billion by 2030, reflecting a CAGR of 7.9%.
Lim notes that the expansion is driven by supportive government policies and incentives, as well as advances in solar technology that are driving down unit costs.
Critically, he points out that UACJ holds the elusive property asset management licence required for private finance initiatives (PFIs) in Japan. “These licences are not easy to get and the Japanese authorities don’t issue many of them,” says the CFO.
In November, the subsidiary led a consortium that won a bid from the Japanese government to develop and operate one of such PFIs in Saitama Prefecture.
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Funded by the government, the consortium plans to build a unique public-use facility comprising a fitness centre, park, pool and hot-water bathhouse utilising residual heat from an existing waste treatment plant. Upon completion in 2027, the facility will be operated by the consortium for a period of 20 years for a fixed fee.
Lim believes Uni-Asia’s expertise in asset management and alignment in values with the Japanese government’s increasing consideration of sustainability in its development projects is partly a case of “being in the right place at the right time”.
“These are initiatives not propelled by us but by the Japanese government, which believes they need a stronger emphasis on sustainability,” says Lim. “We happen to be able to provide construction management in this aspect and also operate the facilities thereafter.”
He adds: “Hopefully we can replicate similar projects outside of Japan, but currently the focus remains primarily on Japan.”
Not upping Hong Kong stake
Contrary to its approach to Japan, Lim is quick to point out that Uni-Asia is not looking to increase its exposure to Hong Kong, where the company also has investments in commercial development projects.
Although these projects initially turned out to be lucrative, geopolitical instability in the region and the Covid-19 pandemic created an extended lull in the Hong Kong property market, lifting only after the city removed all additional stamp duties on foreign markets in late February.
The resulting frenzy among Mainland Chinese buyers, whose own property market remains ravaged by a debt crisis, meant that they accounted for up to a third of new Hong Kong property sales in March.
While Lim acknowledges that Mainland interest could fuel a resurgence in the Hong Kong property market, it will not be enough to lure Uni-Asia into new projects in the city.
He says Uni-Asia’s priority is to regain the capital invested in the city before any other considerations. “We will not be increasing our stake or investment in Hong Kong; we want to exercise cautious and prudent management of our assets and we want to see some money coming back.”
“In the long run, I believe Hong Kong will still have a place in the Asian economy,” Lim adds. “However, how long the rough patch that it is going through now will last, is anyone’s guess.”
Deliberate capital allocation
Not all of Uni-Asia’s operations in Hong Kong are struggling to return results — it is also home to the commercial management team in charge of the company’s shipping business. While the shipping industry is prone to being cyclical, Uni-Asia has managed to successfully hedge against historical volatility through several key differentiating factors.
First, the company invests in versatile handy-size dry bulk carriers, which can be deployed in shallower waters and are able to reach less developed ports — common shipping nodes in dry bulk transportation.
According to Lim, the market rate for these smaller vessels tends to be less volatile, and remains more liquid compared to the market for larger ships.
Next, he explains that Uni-Asia is able to take advantage of the shipping cycle to monetise these assets. The company manages a healthy mix of time-charters to its shipping line clients, with periods that range from floating rates or index-linked rates to fixed rates. The charter lengths also vary from shorter contracts to those that extend beyond a year.
“This is where our strength is and that is how we are able to hedge against any cyclical changes in the market,” says Lim.
While environmental regulations like carbon tax have introduced new uncertainties to the shipping industry in the past several years, Lim is positive that there will be opportunities to expand Uni-Asia’s shipping assets and grow its vessel portfolio if the company studies the market well.
“We might start looking at reducing some older vessels and for new opportunities in the coming years when prices of newbuild vessels are more competitive, especially when there is a consensus on the type of fuel that will be used for vessels moving forward,” he says.
“We don’t want to rush into placing orders for new ships. We will try to take the time that we have to monitor the market on a longer-term basis and assess how we should renew our fleet of vessels over the next five to six years,” adds Lim.
He notes that while Uni-Asia’s shipping business continues to form the majority of its portfolio, the company’s long-term vision sees its property business as an integral component that complements its shipping assets, providing balance and stability to its financial performance.
“The dual nature of our asset classes has historically allowed us to deliver competitive returns and strong dividends, as seen in the record distributions of 2022 following the shipping boom,” the company said recently in its response to shareholders ahead of its annual general meeting on April 30.
Lim points out that Uni-Asia has consistently paid dividends to shareholders since FY2012, with a cumulative dividend payout of US$32.5 million compared to the company’s cumulative profit of US$65.6 million from FY2012 to FY2023 — representing a dividend payout ratio of 50%.
The CFO says the company maintains a sound level of cash reserves as a “strategic asset” to support its growth initiatives, particularly in markets like Japan where Uni-Asia sees considerable potential. “Our cash position is a deliberate part of our capital allocation strategy, earmarked not only for new projects with compelling returns but also for opportunistic renewals of our vessel fleet when attractive prices present themselves,” says Lim.
He adds: “Our prudent approach balances immediate shareholder returns with reinvestments that we believe will lead to significant value creation.”
Year-to-date, Uni-Asia’s share price had dropped 10.87% to close at 82 cents on April 30, 32% of its NAV per share of US$1.89. This values the company at $64.45 million.
