Introduction ofJapan Credit Rating Agency (JCR)

May-Jun 2019

JCR – Connectingissuers and investors

To reassure investors with independent assessment and monitoring by the locals

JCR – Connectingissuers and investors

To reassure investors with independent assessment and monitoring by the locals

JCR in a nutshellJCR in a nutshell

2

Embedded in Japan- Index - Nomura BPI- Investment Guidelines (GPIF, etc.)- Listing Requirement – Tokyo Pro-

Bond Market- Monetary Policy – Bank of Japan

(BOJ) Bond Purchase Program - Bank Risk Weight Calculation –

ECAI for 85% of JP Regional Banks- Risk Amount Calculation –

Insurance companies in Japan

1. JCR = CRA closest to Japanese investorsEstablished jointly by Japanese institutional investors in 1985

2. JCR Rating = Ticket for investment by Japanese investorsDominant Rating Coverage (>60%) for Japanese companiesEmbedded in Japanese investors’ Investment Guidelines

3. JCR Analyst = Comfort for Japanese investorsAnalysis & Monitoring by Japanese CRA with Global Recognition

Global RecognitionFSA – Registered CRA No.1

US SEC – Nationally Recognized Statistical Rating Organization

ESMA – Certified CRA

HKMA - ECAITurkey BRSA - ECAI

Thai SEC – Approved CRABank Indonesia – Recognized CRA

Global FootprintGlobal Footprint

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NRSRO 1/

Certified CRA1/

Registered CRA No.1

= Chair

1/ The only CRA from Japan (US, EU and ACRAA)

1/

Outline

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P.5

About JCR

P.18

About JCR Rating

P.29

JCR’s Rating Coverage

P.43

ESG & JCR’s Sustainable

Finance Evaluation

P.50

Bond Market &Cross Border

Investorsin Japan

Company ProfileMissionCode of ConductHistoryInvestor ServiceJCR Rating in Investment CriteriaJCR as ECAIRating Industry in JapanJCR’s Global StrategyRegulatory RecognitionTie up with EM CRAsACRAAInvestor Support

RatingRating Definition (LT)Rating Definition (ST)Rating ScaleRating DistributionRating PolicyRating ProcessRating MethodologyCountry CeilingFI Capital Instruments

Industry LandscapeIndustry-wiseJapanese BanksBK Capital InstrumentsHybrid SecuritiesStructured FinanceProject FinanceJ-REITSovereign & MDBForeign IssuersNon-JP Issuer RatingNon-Japanese FIsJCR Bond Rating

GB and ESG Investment in JapanJCR’s Green Bond EvaluationTrack RecordCase StudyJCR’s Social Bond Evaluation

Bond Market in JapanCorporate Bond MarketCB Market – TopicsType of JPY Corp BondHousehold SavingBorrowing & Interest RateBanking SectorAsset Management IndustryCross Border Loan & InvestmentCross Border InvestorsJapanese Foreign Securities InvestmentEM LC Bond InvestmentInvestment StanceValue of JCR Rating

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Company Profile

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Name Japan Credit Rating Agency, Ltd. (JCR)

Establishment 1 April 1985

Headquarters Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061 Japan

Shareholders Widely dispersed among 86 shareholders mostly consisting ofJapan’s institutional investors (see below) and 2 news agencies:- 15 Insurance companies- 5 Nationwide banks- 56 Regional banks

Board of Directors

• Shokichi Takagi, President and CEO• Takuro Shimada, Director; Yusuke Harada, Director; 4 non-executive directors

Main Business Areas

• Credit Rating• Research• Publication and Information Services

Regulatory Recognition

• Japan – Credit Rating Agency (CRA) registered with FSA• US – Nationally Recognized Statistical Rating Organization (NRSRO) registered by US SEC• EU – CRA certified by ESMA• Thailand – Approved foreign CRA certified by Thai SEC• Indonesia – Recognized CRA by Bank Indonesia for BI Regulation for Private External Debt• ECAI in Japan, Hong Kong SAR, Turkey and the EU

Mission & Code of Conduct

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Mission1. Contribute to the development of free, fair and transparent capital markets2. Be a prominent leader in credit evaluation in Japan by being

• fair and open to all stakeholders; and• independent and objective

3. Produce fair and quality analysis and provide credible and consistent rating information

Principles1. Look for the tides rather than the ripples2. Refrain from taking advantage of or recklessly accelerating market movements3. Behave with a recognition that credit ratings are public goods 4. Pay due attention to local context and accept diverse values

Code of Conduct 1. Quality and Integrity of Credit Rating Process2. Independence and Avoidance of Conflicts of Interest3. Officers and Employees’ Independence and Avoidance of Conflicts of Interest4. Disclosure of Credit Rating Information5. Treatment of Confidential Information6. Disclosure of JCR’s Code of Conduct and Communication with Market Participants

(Source) https://www.jcr.co.jp/en/criterion/

History – Pioneer of Credit Rating in Japan

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Rated Financial Instruments by JCR2005 2010 2015

Corporate Finance (Bond, Loan)Restructuring, Exit-financeLeveraged Buyout (LBO)

Hybrid SecuritiesWBS, Project Finance

Asset Based Lending (ABL)Ship Financing

Cross-border LoanFund

FIs' Capital InstrumentsAviation Finance/EETC

Future Cashflow SecuritizationListed Infrastructure Fund

TLAC InstrumentsGreen Bond 1/

Infrastructure FundSocial Bond 1/

1/ Evaluation (not Credit Rating)

(Ref.) History of Credit Rating Industry in Japan

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Major milestones of Japanese Credit Rating Industry1948 Promulgation of Securities and Exchange Act1949 Formation of Bond Underwriters Committee (BUC)

by major banks and securities firms1979 Establishment of Japan Bond Research Institute (JBRI)1985 Establishment of Japan Credit Rating Agency (JCR)

Establishment of Nippon Investors Service, Inc. (NIS)1987 "Rating" was adopted as one of bond issue

requirementsJapan MOF designated 6 CRAs as qualified CRA

1988 Termination of BUCRelaxation of bond issue requirements (e.g. rating level)

1990 Consolidation of bond issue requirements into "rating"1996 Repeal of bond issue requirements (i.e. rating

requirement)1997 First corporate bond default by Japanese company1998 Merger of JBRI & NIS2006 Japan FSA designates 5 CRAs as ECAI and announced

mapping result2010 Japan FSA introduced CRA Registration System

Registered CRAs in Japan1. Japan Credit Rating Agency, Ltd. (JCR)2. Moody’s Japan K.K.3. Moody’s SF Japan K.K.4. Standard & Poor’s Rating Japan K.K.5. Rating and Investment Information, Inc.6. Fitch Ratings Japan Limited7. Nippon Standard & Poor’s K.K.

(Source) Financial Services Agency, Japanhttp://www.fsa.go.jp/en/regulated/licensed/cra.pdf

Investors Service

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Website (www.jcr.co.jp/en)

“Rating-Eye”

“J-CRIS”

Bloomberg, Reuters

Jiji Press

Seminar

Training Course

Website:Monthly viewers at around 30,000

• Subscription Service: Rating Eye• Database Service: J-CRISSubscribers:

Authorities, Public Sector Bank, Nationwide Bank, Regional Bank, Credit Union, Foreign Bank, Investment Bank, Insurance Company, Pension Fund, Mutual Fund, Asset Management Company, Real Estate Company, Manufacturing Company, Energy Company, Money Market Dealer, Auditor, etc.

JCR Rating in Investment Criteria

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AAAAA+AAAA-A+AA-

BBB+BBBBBB-BB+BBBB-B+BB-

CCC

Nomura BPI (Bond Price Index)• Index of JPY denominated bonds issued in

Japan (including Samurai)• With “A range or above” rating from either

JCR, Moody’s, S&P or R&I

(Source) Nomura Securities, Bank of Japan, GPIF, NPFA

Government Pension Investment Fund (GPIF) –Investment Policy• Benchmark – Nomura BPI• Corporate bonds to be

invested must have a rating of “BBB range or above” either from JCR, Moody’s, S&P, Fitch or R&I

• If the rating is downgraded below BBB-, such bonds shall be sold.

BOJ’s Bond Outright Purchase• With “BBB range or above”

rating from either JCR, Moody’s, S&P or R&I

• Remaining maturity: 1-3 yearsNational Pension Fund Association (NPFA) –Investment Policy• Benchmark (Bond) –

Nomura BPI & Citigroup World Government Bond Index

Nomura DC Domestic Bond Index Fund (Mutual Fund) –Investment Policy• Benchmark – Nomura BPI

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All insurance companies in Japan use JCR ratings to calculate solvency margin.

JCR Rating for Regulatory Risk Calculation85% of Japanese Regional Banks adopt the Standardized Approach for CAR calculation under Basel II framework. They all use JCR ratings.

Risk Amount Calculation for Insurance Companies1 AAA Sovereign & MDB 0%

OECD SovereignJapanese Municipality & SOE

2 Other Sovereign and MDB 1%Non-Japanese Municipality & SOEFinancial InstitutionCorporate (BBB range or above1/)

3 Other than Ranks 1, 2 or 4 4%(incl. Corporate with BB range or below1/)

4 Credit to bankrupted entities 30%Defaulted, delinquent, relaxed credit

(Source) Financial Services Agency, Japan

1/ Ratings assigned by CRA registered at Japan FSA only. (Ratings assigned by unregistered CRAs may not be used.)

Risk Weight for Standardized Approach under Basel II in Japan1/ 2/

Sovereign 3/ MDBFinancial

Institution 5/Corporate

Unrated 100% 50% 100% 100% 6/AAA～AA- 0% 20% 20% 20%A+～A- 20% 50% 50%BBB+～BBB- 50%BB+～BB-B+～B-CCC and below 150% 150% 150%1/ Use of unsolicited rating is prohibited except for sovereign.2/ Apply the risk category of 2nd highest rating if there are multiple ratings.3/ Bond issued by the JP government and JP municipality is weighted 0%.4/ Except for IBRD, IFC, MIGA, IDA, ADB, AfDB, EBRD, IDB, EIB, EIF, NIB,

CDB, IsDB, IFFIm, CEB and AIIB that are treated as 0% risk weight.5/ Based on sovereign rating of the entity incorporated.6/ 150% if corresponding sovereign risk weight is 150%.

50%

100% 100%150%

100%100%

• Global Network of Local CRAs with wealth of in-depth local knowledge

• Alliances• ACRAA

Connectingissuers and investors

To reassure investors with independent

assessment and monitoring by the

locals

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JP Issuers• Over 60% Coverage of

Japanese companies• In-depth understanding of

Japanese companies

Non-JP investors

Non-JP Issuers JP investors

• Global Regulatory Recognition

• US: NRSRO• EU: Certified CRA• HK, ID, TK, TH

• JCR in Investment Criteria• JCR’s Comparative Eye with

Japanese Peers• Japanese Report by JCR• Coverage by JCR’s Japanese

Analyst

JCR’s Global Strategy

Global Regulatory Recognition

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JAPAN• Registered as Credit Rating Agency by FSA (Registered CRA No.1)• Recognized as ECAI for Basel II

US• The only Japanese CRA Registered as Nationally

Recognized Statistical Rating Organization(NRSRO) by SEC

EU• The only Japanese CRA certified under EU

Regulation on credit rating agencies

INDONESIA• Accredited as Recognized CRA by Bank Indonesia for BI

regulation for corporate external debt management

HONG KONG• Recognized as ECAI by HKMA

THAILAND• Certified as Approved Credit Rating Agency by

Thai SEC

TURKEY• Recognized as ECAI by BRSA

[Recent Cases of JCR Rating assigned outside Japan]Nov 2018 USD Notes (144A/Reg S) by Chile’s Empresa Nacional del Petróleo (ENAP) Aug 2018 INR Global Notes by African Development Bank (AfDB)Mar 2018 JPY Notes (144A/Reg S) by KKR Group Finance Co. IV LLC

[Recent Cases of JCR Rating assigned outside Japan]Nov 2018 USD Notes (144A/Reg S) by Chile’s Empresa Nacional del Petróleo (ENAP) Aug 2018 INR Global Notes by African Development Bank (AfDB)Mar 2018 JPY Notes (144A/Reg S) by KKR Group Finance Co. IV LLC

Tie-up with EM CRAs

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HQ: Karachi, PakistanOfficial Recognition: Securities and Exchange Commission of Pakistan & State Bank of Pakistan

HQ: Istanbul, TurkeyOfficial Recognition: Capital Market Board, Banking Regulation and Supervisory Agency & Treasury

HQ: Mumbai, IndiaOfficial Recognition: Securities and Exchange Board of India & Reserve Bank of India

HQ: Mexico City, MéxicoOfficial Recognition: Mexico’s National Banking and Securities Commission, US SEC & ESMA

HQ: Kuala Lumpur, MalaysiaOfficial Recognition: Securities Commission of Malaysia & Bank Negara Malaysia

HQ: Lima, PerúOfficial Recognition: Peru SEC (SMV) & Superintendencia de Banca, Securos y AFP

BAHRAIN

Islamic International Rating Agency (IIRA)

BANGLADESH

Credit Rating Agency of Bangladesh Limited (CRAB)Credit Rating Information & Services Limited (CRISL)Emerging Credit Rating Ltd.National Credit Ratings Ltd.

INDIA

Acuité Ratings & Research Limited Brickwork Ratings India Pvt. Ltd.CARE RatingsCRISIL LimitedICRA Limited

INDONESIA

PT Pemeringkat Efek Indonesia (PEFINDO)

JAPAN

Japan Credit Rating Agency, Ltd (JCR)

KOREA

Korea Ratings Corporation (Korea Ratings)NICE Investors Service Co., Ltd. (NICE)

MALAYSIAMalaysian Rating Corporation Berhad (MARC)RAM Rating Services Bhd

PAKISTAN

VIS Credit Rating Company Limited (VIS)Pakistan Credit Rating Agency Limited (PACRA)

PEOPLE’S REPUBLIC OF CHINA

China Cheng Xin International Credit Rating Co., LtdChina Lianhe Credit Rating Co., Ltd.Dagong Global Credit Rating Co., Ltd (Dagong)Golden Credit Rating International Co. Ltd.Shanghai Far East Credit Rating Co., Ltd. (SFECR)Shanghai Brilliance Credit Rating & Investors Service Co., Ltd.

PHILIPPINES

Philippine Rating Services Corporation (PhilRatings)

TAIPEI, CHINA

Taiwan Ratings Corp. (TRC)

THAILAND

TRIS Rating Co., Ltd. (TRIS)

TURKEY

JCR Eurasia Rating

ACRAA – The Broadest Network of CRAs in Asia

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At the initiative of JCR, the Association of Credit Rating Agencies in Asia (ACRAA) was founded in 2001 for mutual cooperation among CRAs in Asia.

The network has been expanded to 28 CRAs in 13 jurisdictions in Asia.

JCR serves as Chairman.

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Proactive Investor Support

Sovereign & Country Risk Training Course• JCR organizes training courses for

Japanese investors

JCR aspires to be the Centre of Japanese Foreign Investors Community

Pioneer of Foreign Credit Assessment• Since 1986

Society for Sovereign Risk Analysis• JCR founded the society among foreign

credit analystsSeminars• JCR organizes seminars on key topics

(TLAC, Green) and newly rated entitiesConnect with Foreign Issuers• JCR asks questions on behalf of Japanese

investors

Supported by Global Local Knowledge• Strong network of Local CRAs in the world

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Our Product – Rating

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Issuer Rating Issue Rating(Bond & Loan)

Long-term Rating(AAA, AA, A, BBB,

BB, B, etc.)

Short-term Rating(J1, J2, J3, etc.)

Credit Rating(Published)

Private Rating(Confidential)1/

Issuer Rating Issue Rating(Bond & Loan)

Long-term Rating(AAA, AA, A, BBB,

BB, B, etc.)

Short-term Rating(J1, J2, J3, etc.)

Long-term Rating(AAA, AA, A, BBB,

BB, B, etc.)

Short-term Rating(J1, J2, J3, etc.)

Long-term Rating(AAA, AA, A, BBB,

BB, B, etc.)

Short-term Rating(J1, J2, J3, etc.)

1/ Result of Private Rating can be shared with those who sign confidential agreement.2/ Upon request, JCR will terminate private rating and assign credit rating with no additional charge.

2/

Rating Definition (Long-term Rating)

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Rating Definition

AAA The highest level of certainty of an obligor to honor its financial obligations

AA A very high level of certainty to honor the financial obligations

A A high level of certainty to honor the financial obligations

BBB An adequate level of certainty to honor the financial obligations. However, this certainty is more likely to diminish in the future than with the higher rating categories.

BB Although the level of certainty to honor the financial obligations is not currently considered problematic, this certainty may not persist in the future.

B A low level of certainty to honor the financial obligations, giving cause for concern

CCC There are factors of uncertainty that the financial obligations will be honored, and there is a possibility of default.

CC A high default risk

C A very high default risk

LD JCR judges that while an obligor does not honor part of the agreed to financial obligations, but it honors all its other agreed to financial obligations.

D JCR judges that all the financial obligations are, in effect, in default.

N.B. “+” or “-” is added between “AA” and “B” to stand for the relative strength within the rating level (e.g., BBB+).

Rating Definition (Short-term Rating)

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Rating Definition

J-1The highest level of certainty of an obligor to honor its short-term financial obligations.Within this rating category, obligations for which the certainty is particularly high areindicated by the symbol J-1+.

J-2 A high level of certainty to honor the short-term financial obligations, but slightly less thanJ-1

J-3 An adequate level of certainty of an obligor to honor its short-term financial obligations, butsusceptible to adverse changes in circumstances

NJ The certainty of an obligor to honor its short-term financial obligations is less than in theupper-ranking categories.

LD JCR judges that while an obligor does not honor part of the agreed to financial obligations,but it honors all its other agreed to financial obligations.

D JCR judges that all the financial obligations are, in effect, in default.

<Benchmark (for reference only)>J-1+ AAA AA+ AA AA- A+

J-1 A+ A A-

J-2 A- BBB+ BBB BBB-

J-3 BBB- BB+ BB

NJ BB BB- --- C

Rating Scale - Global

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Mapping ResultJCR Moody's S&P Fitch

Sovereign1-1 AAA ～ AA- Aaa ～ Aa3 AAA ～ AA- AAA ～ AA-1-2 A+ ～ A- A1 ～ A3 A+ ～ A- A+ ～ A-1-3 BBB+ ～ BBB- Baa1 ～ Baa3 BBB+ ～ BBB- BBB+ ～ BBB-1-4 BB+ ～ BB- Ba1 ～ Ba3 BB+ ～ BB- BB+ ～ BB-1-5 B+ ～ B- B1 ～ B3 B+ ～ B- B+ ～ B-1-6 Below B- Below B3 Below B- Below B-

Multilateral Development Banks (MDBs)2-1 AAA ～ AA- Aaa ～ Aa3 AAA ～ AA- AAA ～ AA-2-2 A+ ～ BBB- A1 ～ Baa3 A+ ～ BBB- A+ ～ BBB-2-3 BB+ ～ BB- Ba1 ～ Ba3 BB+ ～ BB- BB+ ～ BB-2-4 B+ ～ B- B1 ～ B3 B+ ～ B- B+ ～ B-2-5 Below B- Below B3 Below B- Below B-

Financial Institutions3-1 AAA ～ AA- Aaa ～ Aa3 AAA ～ AA- AAA ～ AA-3-2 A+ ～ A- A1 ～ A3 A+ ～ A- A+ ～ A-3-3 BBB+ ～ B- Baa1 ～ B3 BBB+ ～ B- BBB+ ～ B-3-4 Below B- Below B3 Below B- Below B-

Corporates4-1 AAA ～ AA- Aaa ～ Aa3 AAA ～ AA- AAA ～ AA-4-2 A+ ～ A- A1 ～ A3 A+ ～ A- A+ ～ A-4-3 BBB+ ～ BBB- Baa1 ～ Baa3 BBB+ ～ BBB- BBB+ ～ BBB-4-4 BB+ ～ BB- Ba1 ～ Ba3 BB+ ～ BB- BB+ ～ BB-4-5 Below BB- Below Ba3 Below BB- Below BB-

(Source) Financial Services Agency of Japan (FSA) (http://www.fsa.go.jp/policy/basel_ii/09.pdf)

N.B. The same mapping result was published by European Securities Markets Authority (ESMA).(http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2016.275.01.0003.01.ENG)

Rating Distribution

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1/ As of the end of December 20182/ Ratings on Japanese companies (not including sovereign, municipalities, FILP agencies, medical and academic institutions, J-REIT, structured finance, guaranteed bonds).3/ “LD” stands for “Limited Default”; “CM” for “Credit Monitor”.

Rating Policy

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Rating assignment and verification

Ratings are assigned as per published rigorous rating policy and methodologies, making use of all available information.Validity of ratings is verified by historical performance.

Analysts in charge Analysts are ensured to have sufficient knowledge and expertise.

Analyst Team and Rating Committee

A team is formed by multiple analysts, which makes a proposal to a rating committee. Analysts are ensured to have no conflict of interests to rating applicants.

Information Quality Quality of information is ensured to be sufficient for credibility of ratings.

Prior Screening For new asset securitization products, prior screening is made by a council of senior managers to confirm if it is possible to assign ratings.

Periodical Review of rating policy and methodologies

A council is established to periodically review the rating policy and methodologies.

Ad-hoc Review of rating policy and methodologies

Review is made to the rating policy and methodologies for asset securitization products when the risk characteristics of underlying asset changes materially.

Review and withdrawal of ratings

Ratings are constantly monitored and updated, and regularly reviewed.Should ratings be withdrawn, public announcement is made unless the rated entity or financial obligation cease to exist.

Rating Process

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11. Publication

10. Rating Notification and Appeal Process

9. Rating Committee

8. Further Assessment

7. On-site Meeting Interview (and Site Visit if necessary)

6. Initial Assessment

5. Verification of Information Quality

4. Information Request

3. Prior Screening

2. Assignment of Rating Analysts

1. Request for Rating

Normally 2 months

12. Annual Review (Interview + Rating Committee)

If gross factual misunderstanding were identified, JCR would re-examine the rating by replacing analysts and reorganizing rating committee.

“Without delay”(FSA Ordinance)“Within 4 Business

Days” (JCR rule)

Rating Methodology

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Corporate Construction, Food, Paper & Pulp, Chemical, Pharmaceutical, Petroleum, Tire, Glass, Cement, Iron & Steel, Non-ferrous Metal, Electronics, Machinery, Automobile & Auto-parts, Trading, Retail, Food Service, Real Estate, Railway, Land transport, Marine transport, Air transport, Warehouse, Information service, Telecom, Power, Gas

Financial Institutions Bank, Securities, Life Insurance, General insurance, Lease, Consumer finance, Credit sales and credit card, Capital and TLAC instruments

Public Sector Local Government, Fiscal Investment and Loan Program (FILP) Agency

Sovereign & Supranational Sovereign, Public Sector Entities, Multilateral Development Banks (MDB)

Medical institutions

Educational Institutions

Structured Finance ABS, RMBS, CDO, CMBS, Future Flow Securitization, Credit-Linked Products, WBS,Repackaged Financial Instruments, ABCP, Project Finance, Ship Finance, Aviation Finance, EETC, J-REIT, Listed Infrastructure Funds, Swap Counterparty, Deposit accounts and investment instruments, Commingling Risk, Backup Servicer

Others Holding company, Subsidiary, Hybrid Securities’ Equity Content, Financial Institutions’ TLAC and Capital instruments

N.B. All the methodologies are publicly available at JCR website: (https://www.jcr.co.jp/en/rrinfo/).

(e.g.) Sovereign & Country Ceiling

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Rating

AAA

X+3

X+2

X+1

X

C

Sovereign Ceiling = Sovereign Rating

Country Ceiling(normally

Sov Rating+ 0-3 notch)

- Supra-national entities- Strong support from foreign parents

Entities with (a) stable and solid earnings base in foreign countries, (b) strong ability to raise funds in the international

capital markets, and (c) sound financial structure

Vast majority

Details are available at:<https://www.jcr.co.jp/en/pdf/dm25/JCR's_Rating_Methodology20141107.pdf>

(e.g.) Financial Institutions’ Capital and TLAC Instruments

28 Details are available at:<https://www.jcr.co.jp/en/pdf/dm26/Reference_Reports/20170427Financial_Institutions_Capital_and_TLAC_Instruments.pdf>

Notch-down approach ((A) + (B))

(B) (Shorter) Distance to Loss(A) Recoverability

Subordinated (e.g., Holding Company,

SNP, T2&T1)

-1 notch

TriggerLevel

Trigger event Notching

Very Low Point of non-viability (PON), Resolution 0Low Common Equity Tier 1 Ratio < 5.125% -1

Issuer’s discretion -1Issuer’s discretion but likely constrained bysystem or authorities' intention

-2

Common Equity Tier 1 Ratio < 7.0% -3

High

(cf.) Notch-down for Holding Companies’ TLAC instruments in jurisdictions other than Japan

= “Structural Subordination (-1)” + “Very low trigger (0)” + “Country specific bail-in possibility prior to PON/Resolution, if any (0 or -1)”

JapanSeniority Trigger

Senior debt (=Issuer Rating) Default -1 AA-Sub debt Default -1 AA- -2Tier 2 (>5y, not perpetual) PON -1 -2 A+Tier 2 (perpetual) 1/ -2 -3Additional Tier 1 (AT1) 2/ -3 -4 A-

1/ Shortage in distributable funds (discretion)2/ Shortage in distributable funds (mandatory), CET1<5.125%

(mandatory), PON (mandatory) or issuer's discretion

AA

IssuerBank Holding

EUSeniority TriggerSenior debt (=Issuer Rating) ResolutionSenior Non-Preferred Debt Resolution -1 AA-Tier 2 (>5y, not perpetual) 3/ -2 A+Additional Tier 1 (AT1) 3/, 4/ -4 A-

3/ State Aid (Bail-in), PON, Resolution4/ Issuer's discretion for optional suspension of dividend

or interest payment, etc.

IssuerAA

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Industry Landscape

30

JCR Ratings are solicited by over 600 Japanese Companies, over 60% of the total.

Industry-wise Coverage in Japan

31

No. 2/ JCR Coverage 3/ No. 2/ JCR Coverage 3/

Fishery, Agriculture and Forestry 2 100% Precision Instrument 11 36%

Mining 2 50% Other Product 15 47%

Construction 27 63% Electric Power and Gas 20 60%

Food 38 71% Land Transport 34 74%

Textile and Apparel 7 71% Marine Transport 4 100%

Pulp and Paper 10 60% Air Transport 2 100%

Chemical 57 49% Warehousing and Harbor Transport Service 12 67%

Pharmaceutical 18 11% Information and Communication 25 60%

Oil and Coal Product 7 86% Wholesale Trade 47 70%

Rubber Product 6 83% Retail Trade 39 77%

Glass and Ceramic Product 13 62% Banks 156 76%

Iron and Steel 13 85% Securities and Commodities Futures 28 75%

Non-ferrous Metal 14 64% Insurance 39 56%

Metal Product 8 75% Other Financing Business 62 81%

Machinery 45 56% Real Estate 24 71%

Electric Appliance 53 38% Services 29 59%

Transport Equipment 37 43%1/ As of the end of Mar 20182/ Number of Japanese companies that solicit credit ratings3/ Not including unsolicited ratings

Coverage – Japanese Banks

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JCR has the highest rating coverage for Japanese Banks.

Coverage – Banks’ Capital Instruments

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The only CRA that rates Japanese megabanks’ all B3AT1 instruments.

(Source) Bloomberg

Ratings on B3AT1 Bonds by 3 Japanese Mega BanksJCR A (JP) B (US) C (US) D (US)

MUFG Mar-15 A- n.a. n.a. n.a. n.a.Mizuho Jul-15 A- n.a. n.a. n.a. n.a.SMFG Jul-15 A- n.a. n.a. n.a. n.a.SMFG Jul-15 A- n.a. n.a. n.a. n.a.SMFG Jul-15 A- n.a. n.a. n.a. n.a.MUFG Oct-15 A- n.a. n.a. n.a. n.a.MUFG Feb-16 A- n.a. n.a. n.a. n.a.

Mizuho Jul-16 A- n.a. n.a. n.a. n.a.SMFG Sep-16 A- n.a. n.a. n.a. n.a.MUFG Oct-16 A- n.a. n.a. n.a. n.a.SMFG Jan-17 A- n.a. n.a. n.a. n.a.

Mizuho Jul-17 A- n.a. n.a. n.a. n.a.MUFG Oct-17 A- n.a. n.a. n.a. n.a.SMFG Dec-17 A- n.a. n.a. n.a. n.a.

Mizuho Apr-18 A- n.a. n.a. n.a. n.a.Mizuho Jul-18 A- n.a. n.a. n.a. n.a.MUFG Dec-18 A- n.a. n.a. n.a. n.a.

Ratings on B3AT1 Bonds by 3 Japanese Mega BanksJCR A (JP) B (US) C (US) D (US)

MUFG Mar-15 A- n.a. n.a. n.a. n.a.Mizuho Jul-15 A- n.a. n.a. n.a. n.a.SMFG Jul-15 A- n.a. n.a. n.a. n.a.SMFG Jul-15 A- n.a. n.a. n.a. n.a.SMFG Jul-15 A- n.a. n.a. n.a. n.a.MUFG Oct-15 A- n.a. n.a. n.a. n.a.MUFG Feb-16 A- n.a. n.a. n.a. n.a.

Mizuho Jul-16 A- n.a. n.a. n.a. n.a.SMFG Sep-16 A- n.a. n.a. n.a. n.a.MUFG Oct-16 A- n.a. n.a. n.a. n.a.SMFG Jan-17 A- n.a. n.a. n.a. n.a.

Mizuho Jul-17 A- n.a. n.a. n.a. n.a.MUFG Oct-17 A- n.a. n.a. n.a. n.a.SMFG Dec-17 A- n.a. n.a. n.a. n.a.

Mizuho Apr-18 A- n.a. n.a. n.a. n.a.Mizuho Jul-18 A- n.a. n.a. n.a. n.a.MUFG Dec-18 A- n.a. n.a. n.a. n.a.

Coverage – Hybrid Securities

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Market leader for Hybrid Securities’ ratings in Japan.

Judgment of Equity Calculation

Equivalent to Stock 100%

High 75%

Medium 50%

Low 25%

Equivalent to Debt 0%

Key Criteria Consideration

Permanence of Principal

Any legal redemption obligation? Call provision? Reinforcing factors?

Flexibility of Interest Payment

Any flexibility to suspend interest/dividend payment?

Cumulative?

Subordination The lowest claim ranking upon bankruptcy?

JCR Rating on Hybrid Instruments2019 Mori Building Subordinated Bonds

Taiyo Nippon Sanso Subordinated BondsJapan Post Insurance Subordinated BondsDai-ichi Life Holdings Subordinated LoanTokyo Tatemono Subordinated BondsHanwa Subordinated LoanTokyo Century Subordinated BondsTaiyo Nippon Sanso Subordinated LoanNippon Life Insurance Company Subordinated LoanZensho Holdings Subordinated LoanKawasaki Kisen Subordinated LoanSuntory Holdings Subordinated LoanAflac Life Insurance Japan Subordinated BondsTokyo Century Subordinated BondsNippon Life Insurance Company Subordinated LoanUACJ Corporation Subordinated Loan

2019 Mori Building Subordinated BondsTaiyo Nippon Sanso Subordinated BondsJapan Post Insurance Subordinated BondsDai-ichi Life Holdings Subordinated LoanTokyo Tatemono Subordinated BondsHanwa Subordinated LoanTokyo Century Subordinated BondsTaiyo Nippon Sanso Subordinated LoanNippon Life Insurance Company Subordinated LoanZensho Holdings Subordinated LoanKawasaki Kisen Subordinated LoanSuntory Holdings Subordinated LoanAflac Life Insurance Japan Subordinated BondsTokyo Century Subordinated BondsNippon Life Insurance Company Subordinated LoanUACJ Corporation Subordinated Loan

Coverage – Structured Finance

35

JCR rates a wide range of structured finance products in Japan,which totals over 1,000 financial products annually.

Coverage – Project Finance

36

Spearheads the ratings on PPP and securitization in Japan –contributing to market evolution of financial products.

Haneda Airport International Terminal

Civil Servants Housing

PASMO – subway IC card Mega Solar Bio-mass

Ship Investment Fund

Coverage – J-REIT

37

Market leader for J-REIT rating.

Portfolio Analysis- Property Valuation- Quality & Competitiveness- Diversification- Involvement in development

AM’s Management Capacity- Asset Management Policy- Financial Policy- Involvement of AM’s Sponsor

Financial Analysis- Profitability (NOI, ROA)- Cash Flow Stability- LTV (Level & Policy), DSCR, ICR

JCR’s Rating Methodology

(N.B.) Full rating methodology is available at: https://www.jcr.co.jp/en/pdf/dm28/J-REIT20170703.pdf

Coverage – Sovereign & MDB

38

Multilateral Development Banks JCR A (JP)African Development Bank (AfDB) AAA -Asian Development Bank (ADB) AAA AAACentral American Bank for Economic Integration (CABEI) AA -Corporación Andina de Fomento (CAF) AA -European Bank for Reconstruction and Development (EBRD) AAAp -Inter-American Development Bank (IDB) AAA -International Bank for Reconstruction and Development (IBRD) AAA -

Asia Pacific EMEA Americas

AAA Australia, Japan, Singapore Belgium, Denmark, Finland, France,Germany, Netherland, Norway, UK

Canada, US

AA+ Hong Kong SARAA SpainAA- China, Korea Czech, Slovenia ChileA+ SlovakA Malaysia Italy, Poland, PortugalA- Thailand México, PerúBBB+ India, Philippines HungaryBBB Indonesia RomaniaBBB- Russia, Turkey BrazilBB+BBBB-

Coverage – Foreign Issuers

39

1/ As of 7 May 20192/ Only solicited and published credit ratings are counted.3/ Multiple companies in the same group are counted as one (e.g., Financial Group’s Holding Co. and Core Bank).

MDB EMEAAfrican Development Bank (AfDB) MDB AAA FinlandAsian Development Bank (ADB) MDB AAA Pohjolan Voima Oy Energy A+Central American Bank for Economic MDB AA- Teollisuuden Voima Oyj Energy A+

Integration (CABEI) France Corporación Andina de Fomento (CAF) MDB AA Electricite de France S.A. Energy AAInter-American Development Bank (IDB) MDB AA Orange Telecom AInternational Bank for Reconstruction and MDB AAA Renault Automobile A-

Development (IBRD) HungaryHungary Sovereign BBB+National Bank of Hungary Sovereign BBB+

LuxemburgAsia CPI Property Group Property A-India Poland

Bharat Oman Refineries Limited Energy BBB Republic of Poland Sovereign AExport-Import Bank of India Bank BBB+ SpainICICI Bank Limited Bank BBB+ Banco Santander S.A. Bank A+Indian Railway Finance Corporation Limited Finance BBB+ Turkey

Indonesia Republic of Turkey Sovereign BBB-Adaro Energy Energy BBB- Untied KingdomRepublic of Indonesia Sovereign BBB Avation Finance BB

Korea National Westminster Bank Plc Bank A+Busan Bank Bank A NatWest Markets Plc Finance AHanwha Chemical Corporation Chemical A- Royal Bank of Scotland Group plc Finance AHanwha Energy Corporation Energy A- AmericasHotel Lotte Services A CanadaHyundai Capital Services, Inc. Finance A+ Export Development Canada Finance AAAKorea Electric Power Corporation Energy AA- Quebec (The Province of) Municipality AA+Lotte Card Finance A ChileLotte Shopping Services A Empresa Nacional del Petróleo (ENAP) Energy A+POSCO Steel AA- Banco Santander-Chile Bank A+Shinhan Bank Bank AA- Mexico

Malaysia America Movil, S.A.B. de C.V. Telecom AMalayan Banking Berhad Bank A United Mexican States Sovereign A-

Philippines United StatesRepublic of the Philippines Sovereign BBB+ Aflac Incorporated Finance A+

American Family Life Assurance Company of Columbus Finance AACantor Fitzgerald, L.P. Finance BBB+KKR & Co. L.P. Finance A+

JCR Ratings for non-Japanese entities (Solicited Ratings only)

Shadow Rating

JCR’s Ratings on Non-JP Fin Institutions

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Banco Santander (A+)Busan Bank (A)Hyundai Capital (A+)KDB (AA-p)Lotte Card (A)Shinhan Bank (AA-)

May Bank (A)

Exim India (BBB+)ICICI Bank (BBB+)IRFC (BBB+)One Bank (Private)

Export Development Canada (AAA)

Aflac (A+)American Family Life Assurance (AA)Cantor Fitzgerald (BBB+)KKR (A+)

Deutsche Bank (Ap)

3 2 3 2 1 4 1

Avation (BB)Royal Bank of Scotland Group (A)National Westminster Bank (A+)NatWest Markets (A)

Banco Santander-Chile (A+)

JCR Bond Rating (as of End of Apr 2019)

Country Issuer Date JCR Rating Maturity Amount(JPY bil)

CouponRate (%)

China China Eastern Airlines(Guaranteed) Mar 2018 AA 3 year 10.0 0.330%

Hungary Sovereign Mar 2018 BBB+ 3 year 30.0 0.370%

US KKR Mar 2018 A+5 year7 year

20 year

25.05.0

10.3

0.509%0.764%1.595%

Mexico Sovereign Apr 2018 A-

5 year7 year

10 year20 year

57.224.138.715.0

0.600%0.850%1.050%2.000%

France Renault Jun 2018 A- 3 year5 year

39.118.3

0.360%0.490%

Korea Hyundai Capital Jul 2018 A+2 year3 year5 year

12.45.54.1

0.340%0.400%0.650%

Philippines Sovereign Aug 2018 BBB+3 year5 year

10 year

107.26.2

40.8

0.380%0.540%0.990%

Chile Empresa Nacional del Petróleo (ENAP) Nov 2018 A+ 11 year US$680 mil 5.250% (US$)

Luxemburg CPI Property Group Dec 2018 A- 3 year10 year

8.03.0

1.414%1.995%

US Cantor Fitzgerald Apr 2019 BBB+ 2 year 4.5 1.190%

US Cantor Fitzgerald Apr 2019 BBB+ 5 year US$600 mil 4.875% (US$)

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Green Bond & ESG Investment in Japan

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Wider Investor Base (JRTT Green Bonds in Nov 2017)Investors for Green Bonds by Japan Railway Construction, Transport and Technology Agency (JRTT) (assessed by JCR) - Banks, Life Insurance, Investment Fund, Credit Union- University (Kansai, Kogakuin, Rissho)- Health Insurance (Sumitomo life, Kanihoken Kanyusha Kyokai)- Others

- Environmental Restoration and Conservation Agency- Osaka Prefecture Town Management Foundation- Promotion and Mutual Aid Corporation for Private Schools- Sakata Seed Corporation- UCR Infrastructure and Transport

http://www.jrtt.go.jp/05ir/ir-saikenResult.html

Intermediaries’ View – Nomura Securities DCM

(Mar 2017) “Obstacles for issuers to enter the green bond market remain high in terms of cost and complexity of bringing a deal to the market – specifically the need for third party verification of the borrower’s green claims.”

“It’s not just the extra work to justify the green credentials of the bond but a language barrier exists, in that most of the second opinion providers are not Japanese.” http://www.globalcapital.com/article/b12bhj651t6dc4/locals-in-focus-with-japanese-green-bonds-all-set-to-blossom

JCR’s Green Finance Evaluation

45

Phase 1: Evaluation on Greenness(1) To confirm if the project is qualified as green

• Does it have positive environmental impact?• Based on ICMA GB Principles & MOE’s GB Guidelines

(2) To assess how much of the proceeds are used for the qualified green project

Green Portion Grade

100-90% g1

90%> g2

70%> g3

50%> g4

30%> g5

10%> Not eligible

Phase 2: Evaluation on MOTTo evaluate the Management, Operation and Transparency on the green projects

Score Grade

100-80 m1

79-60 m2

59-40 m3

39-20 m4

>20 m5

Phase 3: JCR’s Green Finance Evaluation

To be determined by Evaluation Committee.

m1 m2 m3 m4 m5

g1 Green 1 Green 2 Green 3 Green 4 Green 5

g2 Green 2 Green 2 Green 3 Green 4 Green 5

g3 Green 3 Green 3 Green 4 Green 5 -

g4 Green 4 Green 4 Green 5 - -

g5 Green 5 Green 5 - - -

Perspective Weight

1. Standard and Process to Select Green Project 25%

2. Management of Proceeds 25%

3. Reporting 25%

4. Organization’s Efforts 25%

Details are available at: <https://www.jcr.co.jp/download/d56f355f15ffdbc5de085b95feff5f151f9f45d5f81fa5cffb/20171102GB(EN).pdf>

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Canadian Solar Infrastructure Fund, Inc.

Case Study

1. Evaluation on Greenness = “g1”

• 100% of the proceeds are invested in solar projects (= green projects)

2. Evaluation on Management, Operationand Transparency = “m1”

• Environment assessment incl. CO2 reduction and potential soil contamination is duly taken for each project

• Use of proceeds is limited to the targeted power facilities, and traceable through specific bank accounts.

• Disclosure is made through “Securities Registration Statement”, which will be updated bi-annually.

• The parent company, Canadian Solar Inc., has widely contributing to the environmental issues. Their management is explicitly committed. Multiple external verifications are made for acquired assets.

• Long-term Loan (10 years from Oct 2017, JPY15.7 billion)• Proceeds are used to acquire renewable energy generation assets

and other related costs

“Green 1”

(Source) https://www.jcr.co.jp/download/ded8ed0e0839d0b1b9e797ffd7de085ab75da5e9994a1a0aa9/17d0667e.pdf

JCR’s Social Bond Evaluation

47

Phase 1: Evaluation on Social Impact(1) To confirm if the project is qualified as social

• Does it have positive social impact?• Based on ICMA Social Bond Principles

(2) To assess how much of the proceeds are used for the qualified social project

Green Portion Grade

100-90% s1

90%> s2

70%> s3

50%> s4

30%> s5

10%> Not eligible

Phase 2: Evaluation on MOTTo evaluate the Management, Operation and Transparency on the social projects

Score Grade

100-80 m1

79-60 m2

59-40 m3

39-20 m4

>20 m5

Phase 3: JCR’s Social Bond Evaluation

To be determined by Evaluation Committee.

m1 m2 m3 m4 m5

s1 Social 1 Social 2 Social 3 Social 4 Social 5

s2 Social 2 Social 2 Social 3 Social 4 Social 5

s3 Social 3 Social 3 Social 4 Social 5 -

s4 Social 4 Social 4 Social 5 - -

s5 Social 5 Social 5 - - -

Perspective Weight

1. Standard and Process to Select Social Project 25%

2. Management of Proceeds 25%

3. Reporting 25%

4. Organization’s Efforts 25%

Details are available at: <https://www.jcr.co.jp/download/7555252e52e07f955d77e30a77def2fd927f75c75c259287e7/SB%20evaluation%20EN.pdf>

JCR’s Recent Track Record

48

2019 Issuer / Originator Subject Use of Proceeds EvaluationMar 8 Tokyo Tatemono Subordinated Bonds Green Building Green 1

13 Japan Finance Corporation Synthetic CLO Unsecured SME Loans (Their

credit risks) Social 1

20 JACCS Bonds Solar Loans Green 1

20 Nippon Yusen Long-term Loan Installation of scrubber Green 1

22 Canadian Solar Inc. Green Equity Trust Renewable Energy Green 1

27 Nagoya Railroad Co., Ltd. Green Finance Framework

Clean Transportation & EnergyEfficiency Green 1

29 Meidensha Corp. Shelf Registration Clean Transportation Green 1

29 Nagoya Railroad Co., Ltd. Long-term Loan Green Building Green 1

29 United Urban Investment Corporation Long-term Loan Green Building Green 1

Apr 5 Orient Corporation Bonds Green Reform Loan Green 1

9 JACCS Bonds Solar Loans Green 1

17

ANA Holdings Bonds

Access to essential public services (transportation) and socioeconomic empowerment to disabilities, elderly and LGBT

Social 1

22 United Urban Investment Corporation Bonds Green Building Green 1

N.B. For the full list, please look at JCR’s website (https://www.jcr.co.jp/en/greenfinance/).

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50

Bond Market in JapanJapan has the world’s 2nd largest bond market, but dominated by JGB.

51

Corporate Bond Market

No. of Outstanding CB Issuers : 422 (Mar 2018)

(cf) No. of Listed Companies: 3,607 (Mar 2018)

Corporate Bond Market – Topics

52

EM Sovereign TLAC

2017 JCR TLAC MethodologyJCR TLAC Seminar

2018 AprFSA Policy

(Source) FSA, Japan Securities Dealers Association, Kinyu Facsimile Shimbun , JCR

Type of JPY Corporate Bond

53

Samurai (Public Offering)Tokyo Pro-Bond (Private)

Euro MTN (Private)

1. Bond Index Eligible (JCR “A-” or above)

2. Investor Base Wide

3. Issue Amount Larger

4. Documentation Japanese

5. GAAP FSA-approved GAAP *

6. Disclosure Semi-annual Update

7. Preparation Time Long

1 Not Eligible2 Medium3 Medium4 Japanese or English5 FSA-approved GAAP *6 Annual Update7 Medium

1 Not Eligible2 Medium3 Smaller4 English5 N.A.6 Annual Update7 FastGAAP approved by FSA: Australian, Belgium (EU-IFRS), Canadian, Dutch, Finnish, French, German,

Hong Kong (HK-FRS), IFRS, Irish, Korean (K-IFRS), Luxembourg, Malaysia (M-IFRS), Mexican, Norwegian, Singapore (S-IFRS), Spanish, Swedish, Swiss, Taiwan (Taiwan-IFRS), UK and US

+ Rating Requirement

(JCR, Moody’s, S&P, etc.)

Household Saving

54

Wealth of Japanese household keeps growing.

(Source) Bank of Japan "Flow of Funds Statistics" (End of Dec 2018)

Net Worth

(USD 14 tril)JPY 1,509 tri

Financial Asset

JPY 1,830 tri(USD 17 tri)

Financial LiabilityJPY 321 tri(USD 3 tri)

54%

14%

29%

3% BankDeposit

Securities

Pension &Insurance

Others

Borrowing & Interest Rate

55

Bank dominance, Subdued demand, Ultra-low interest rate

Banking Sector

56

Excess liquidity is depriving banks’ profitability.

Loan to Deposit Ratio: 65% (End-2018)

Asset Management Industry

57 (Source) The Life Insurance Association of Japan

Asset management became challenging.

Cross Border Loan & Investment

58

Cross-border loan/investment became popular.

(Source) BOJ Financial System Report (Apr 2017)

Nationwide Banks

Regional Banks Credit UnionJPY tri

JPY

FX

Cross Border Investors

59

Japanese Foreign Securities Investment

60

Japan is the 2nd largest foreign portfolio investor in the world.

EM Local Currency Bond Investment

61 (Source) The Investment Trusts Association of Japan

Household investors even take EM currency risk.

62

Cautious Investment StanceInstitutional investors are conservative.

(Source) Japan Securities Dealers Association

(Source) MOF, Japan

Value of JCR Rating

63

Would you like Japanese investors to invest with comfort?Would you like to diversify your Japanese investor base?

Survey among Japanese investors (Sep 2017)

Japanese investors’ comments for JCR Rating“There is an additional value attached by the Japanese analysts’ assessment.”“We particularly appreciate JCR reports on the issuers that do not make much disclosure in Japanese.”“Our investment guidelines allow us to invest if JCR assigns A range rating or above, regardless of US ratings.”

64

For further queries or informationhttps://www.jcr.co.jp/en/

Rating Request & Rating Information

Relationship Management DepartmentHaruhiko Shiono+81 3 3544 7012 / hishiono@jcra.com

Strategic Marketing DepartmentFumihiro Honda+81 90 9685 5714 /honda@jcra.com

Rating Methodology International DepartmentAtsushi Masuda; Toshihiko Naito+81 3 3544 7448 / masuda@jcra.com; tnaito@jcra.com

Structured Finance DepartmentMasayoshi Mizukawa; Kiichi Sugiura+81 3 3544 7023 / mizukawa@jcra.com; sugiura@jcra.com

Green Bond, Social Bond &ESG Evaluation

Sustainable Finance Evaluation DepartmentAtsuko Kajiwara+81 3 3544 7016 / kajiwara@jcra.com

General queries Special Advisor to the PresidentSatoshi Nakagawa +81 3 3544 7011 / satoshi.nakagawa@jcra.com

The information in this material has been compiled by Japan Credit Rating Agency, Ltd. (JCR) based on the information publicly available and deemed reliable as of the date shown in the front page. No representation or warranty, expressed or implied, is made by JCR as to the accuracy or completeness of the information contained herein.