The University of Tokyo plans to raise 20 billion yen bonds with a maturity of 40 years in early October this year. It will be the first of its kind after conditions of such issuances have been relaxed. Japan’s top rated university will use the funds to develop advanced research facilities and online education systems, according to news reports.
Regulation relaxed for national universities to diversify funding sources
The Government of Japan in June decided to relax the requirements for national universities to issue bonds, enabling them to diversify their financial resources. The University of Tokyo is expected to be the first university to utilize the new opportunity in order to fund state-of-the-art research facilities, for example the Hyper-Kamiokande.
Previously, universities could only sell bonds to finance projects that are expected to bring direct income, such as for campus relocations or the maintenance of university-affiliated hospitals. The specifics of the new requirements need to be further deliberated, however, with this relaxation of issuance conditions, universities will have access to a new, agile and large-scale financing method to support facilities that do not generate direct income.
This means, university bonds can also fund the development of cutting-edge research installations, such as quantum computers and ultra-large telescopes. Furthermore, for redemptions, national universities will be able to use the income of the entire university including donations and operational gains.
The Ministry of Education, Culture, Sports, Science and Technology (MEXT) had organized a meeting with experts in March. Here, the topic of giving the universities a freer hand on their business management by relaxing the terms for issuing bonds was proposed. The goal mentioned was to enhance the Japanese universities’ global competitiveness in research and education in an environment where additional funding from the state is not possible.
University bonds represent an important financial source abroad. For instance, in 2018, the University of Cambridge issued a 60-year bond for 600 million British pounds following a 100- year bond for 750 million British pounds issued by the University of Oxford in the previous year.
University of Tokyo’s funding strategy
On July 31, the University of Tokyo announced that it has selected the financial institutions which will manage the issuance of their first university bond. According to university officials, the amount, the maturity and the timing of the offering have been circulated as plans to the financial market. Nikkei had earlier reported that the university plans to raise a total of 100 billion yen in several rounds. The funds are intended to be used for the development of advanced research facilities and online education systems, the business paper reported.
In an interview with the Nikkei, the president of the University of Tokyo, Makoto Gonokami, explained that universities should be the driving force to realize a knowledge-intensive society under digital innovation. However, he added, it is becoming difficult to secure sufficient funds as grants and subsidies have decreased. Issuing bonds will make it possible for the university to raise funds with more freedom of use. President Gonokami is hopeful that the regulations will be relaxed further to allow the hiring and cultivation of young researchers and teaching staff.
Further sources of income for the university include donations and license fees from university- affiliated venture companies, the President of Japan’s top-ranked university said. The university has approximately 370 spin-offs, of which 17 have gone public. Moreover, previous deregulations have enabled the university to rent out R&D bases on campus to start-ups and to receive the user fee in the form of stock options.
Such bonds are expected to attract funds seeking opportunities in ESG investments supporting issuers committed to positive Environmental, Social and Governance factors.
For further information, the president of University of Tokyo, Makoto Gonokami has posted a statement explaining the purpose and significance of the planned bond issue that can be found here: