The Japanese government is stepping up efforts in the space sector, highlighted by the launch of the Space Strategy Fund to help the nation's space industry succeed in the global market. The government aims to eventually expand the scale of the fund to 1 trillion yen.

Experts point out that there is a need to establish an ecosystem in which government funding provides money for early-stage, high-risk technology development, while private banks and investors provide growth capital in the commercialization phase.

Japanese megabank MUFG Bank Ltd. aims to support the growth of the space industry by establishing a financing system that leverages Japan's strengths, according to President and CEO Masakazu Osawa.

'Valley of death'

Osawa expressed his thoughts at the Spacetide business conference held in Tokyo in July. He noted that the space industry has transitioned into a phase where it can serve as a foundation for Japan's economic growth and national security.

"The question now is whether we can build great space industries," he said.

Thanks to the launch of the Space Strategy Fund and funding provided by venture capital, the number of early-stage companies has steadily increased in Japan.

However, once they enter a phase of accelerating the commercialization process, they face a funding gap in the hundreds of billions of yen, which Osawa calls "the valley of death."

Osawa brought up the example of SpaceX, pointing out that the U.S. firm owes its success to the large-scale, sustained capital formation supported by both public and private funds.

"When we look at the Japanese private capital market for startups, a key challenge is (the) limited availability of growth-stage equity capital ... This scarcity becomes a critical choke point," he said.

Bankability is key

To secure financing from banks for high-risk projects, space firms need to improve bankability, or the likelihood of repayment.

Osawa pointed out that although the equity capital gap between the United States and Japan is about 35-fold, the difference in the scale of loans is only threefold.

He expressed the view that loans from banks and other institutions will play a crucial role in the growth of Japan's space industry, saying, "Japan's advantage is the fact that it possesses one of the world's largest banking sectors with substantial capacity to support industrial growth."

He said the key will be "how to mobilize debt financing on top of equity" rather than simply replicating the U.S. model.

Mitsubishi UFJ Financial Group Inc., the parent company of MUFG Bank, has two venture capital companies within its group -- Mitsubishi UFJ Capital Co. and MUFG Innovation Partners Co.

In addition to equity financing provided by the two companies, the group has also begun initiatives where banks share project risks with investee companies such as Space One Co., which develops small rockets, and Astroscale Holdings Inc., which works on space debris removal.

After stressing that the financial group has also provided loans to such space companies, Osawa said, "We need to make such financing more scalable and repeatable across the industry."

Increasing number of large customers

Finding new sources of financing is not the only issue the space industry is facing.

Another major challenge is demand -- increasing the number of major customers that use satellite data and rocket services through combined efforts in the public and private sectors.

The financial group is now aiming to be a buyer of satellite data itself, using it to track and visualize carbon dioxide and methane emissions for a decarbonized society, as well as for workforce reduction and automation in real estate collateral appraisals and inspections in response to Japan's rapid population decline.

"The path to greater bankability is closely linked to demand visibility," Osawa said. "Predictable demand improves cash flow visibility, strengthens bankability and enables greater participation from their providers by itself."

Cooperation among industry, government, academia and financial institutions is essential for the development of the space industry.

"However, each sector has its own logic and language, which is why dialogue among these stakeholders is so important," Osawa said.

"Today, we stand at the threshold of what may be the next great chapter of industrialization, the dawn of the real space age," Osawa said in concluding his speech at the event.

"As the space industry enters its next stage, we will continue to stand with it, helping it grow, scale and create lasting value for society."

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This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.

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