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Japan's Mizuho open to mezzanine financing as virus hits clients' capital positions, bank head says

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By Takashi Umekawa and Yuki Nitta

TOKYO, Nov 9 (Reuters) - The banking arm of Mizuho Financial Group Inc is open to mezzanine financing such as subordinated debt and preferred stocks after the COVID-19 pandemic has eroded clients' capital positions, the bank's chief executive said in an interview.

The remarks by Mizuho Bank CEO Koji Fujiwara come as major Japanese companies, including airline operator ANA Holdings Inc and retailer Aeon Co Ltd, have recently secured funds through subordinated loans.

"We will firmly support our clients who are taking on a role as social infrastructure and are in crucial industries for Japan's growth. We are determined to do so," Fujiwara told Reuters in an interview when asked about mezzanine financing.

"We are taking risks we should take. That is our basic stance," he said, declining to specify which industries he considered important.

Although mezzanine financing means higher risk and higher return for banks than debt financing, it makes it easier for companies to maintain financial soundness and their ratings by reinforcing capital without issuing shares.

As companies have struggled to change from liquidity to solvency, virus-related mezzanine financing requests have increased and reached more than 1 trillion yen from about 40 clients so far, Fujiwara said.

The bank would build a war chest for such financing by selling shares of corporate clients, he added.

The traditional practice of cross-shareholdings, which originally aimed at cementing business ties with clients, has been criticised for hampering corporate governance and exposing banks to market swings.

Mizuho has aimed to reduce 300 billion yen worth cross-shareholdings by March 2022, and has achieved roughly half of the plan so far, the bank said.

The interview was conducted last week and embargoed for release on Monday. (Reporting by Takashi Umekawa and Yuki Nitta. Editing by Gerry Doyle)