Japan's debt issue and Saizen REIT.

On 15 Feb, a reader, Robin Lim commented, "I read yr comments about saizen and they are good. But i hv always been concerned about japan's debt/gdp. An article in Forbes Feb issue p62 "Blowup" explained it well. Be careful about Japanese property, because it can be a Greece."

When I returned to Singapore on 17 Feb, I responded, "Japan does have a debt problem but we have to remember that Japan is not only a borrower, it is also a lender. Japan is the second largest lender to the USA. China is of course the largest.


"I have not read the article in Forbes but did they look at debt as a percentage of GDP only? Another way of looking at this is debt per capita. In this respect, Greece is number one in the world at US$ 27,746. USA is 11th at US$ 11,094. Japan does not even come close."

Apparently, Japan is now the largest holder of US Treasury debt as China cut back its exposure in December 2009.  This was revealed last Tuesday by the US Treasury Dept.



This is one factor which sets Japan apart from Greece.  Japan is also a lender, not just a borrower.  When we look at debt, it is important not to just look at gross debt (ie. the total amount borrowed), we should look at net debt which takes into consideration the borrower's status as a lender.  Japan is one of the largest creditor nations in the world.

Also, as Japan is home to many renowned MNCs, a more accurate picture of Japanese debt situation should compare its net debt to GNP, instead of GDP.  Japanese MNCs repatriate earnings from their global operations back to Japan and GNP is a much bigger figure than GDP.

Interestingly, much of Japan's debt is in local hands.  Less than 10% of Japanese debt is funded by foreign bodies.  This is largely due to the fact that the Japanese people have been such big savers.  In contrast, American national debt is, to a large extent, in foreign hands.

Having said all these, I am not glossing over Japan's debt issue which still has to be dealt with.  Borrowings have to be repaid.  An ageing population puts into question the sustainability of Japan's national debt as well. 

There are some difficult decisions which the government must make and as Japan is still the largest economy in Asia, we should all be very concerned whether any progress is made over time.

I am not a politician or some big shot in a global organisation like the Asian Development Bank or the World Bank.  There is nothing I could do about this, obviously.  The question which might be on your mind now is, "How will this affect Saizen REIT?"

I do not see the debt situation in Japan becoming unmanageable in the next few years.  As the Japanese population ages over the next decade, they will start cashing out of government bonds.  The Japanese government might have to sell US Treasury debt gradually then unless it is able to trim expenditure in a meaningful way or get its economy to grow more robustly in time.  As you can imagine, all these will most likely not happen in, say, one or two years.  It's going to take far longer. 

Saizen REIT is still a most compelling buy in the near term and is still most attractive as a high yielding passive income generator over the next few years.

Saizen REIT: Long-term BUY

A nice and cool Sunday morning.  Woke up early, did the laundry, had a drink and surfed the net for news as usual.  When I visited Next Insight, I got a nice surprise.  Saizen REIT, which has not attracted any analyst coverage in a long time, received coverage from NRA Capital. 

Regular visitors to my blog would know that I am still actively accumulating units in Saizen REIT.  I have written extensively about the REIT and I have also received readers' comments in affirmation as well as cautionary advice.

Even though I believe that my FA of the REIT is thorough and my continuing accumulation of units in the REIT is sensible, it is, dare I say, bracing to hear from more professional quarters.

I remember saying that even if the YK Shintoku portfolio suffers foreclosure, Saizen REIT is still a buy as it would still be severely undervalued.  That is why when a friend told me that his father does not like the management's seemingly cavalier attitude towards this matter, I told him that it is not a big issue and that the management has good reasons to be less worried about it.

"Assuming a conservative stance and based on the assumption that the JPY7.25b CMBS loan encumbered with JPY9.10b worth of assets will be foreclosed eventually, using DDM, we value Saizen at 24.5 Scts (previously 24.3 Scts) and arrive at a target price of 17.0 S cts as previously, maintaining our discount to valuation of 30%." 

"News flow of new credit access is expected to lift valuations to 32.3Scts and a target price of 22.5Scts (based on the same 30% discount rate), providing catalyst for further upward re-rating of Saizen."

Written by Angeline Phua (NRA Capital) .
SAIZEN REIT: Fair value 17 c, long-term buy , please read it here.

Just like my earlier investments in Healthway Medical and some other companies before I started this blog, I believe that accumulating shares in good companies before everyone else is interested in them is one of the best ways to greater capital gains. Well, in the case of Saizen REIT, we are accumulating units.  Good luck to fellow unitholders and have a good Sunday.


Related posts:
Buy Japanese real-estate.
Passive income with high yields: Saizen REIT.
Saizen REIT's quarterly report.