Nippon Life has announced plans to double its outstanding AI infrastructure loans for US data centers from approximately ¥1 trillion at the end of March this year to ¥2 trillion by FY2035. It will use project finance rather than equity investment for the loans.
Nippon Life has announced plans to expand lending for AI infrastructure and double the outstanding balance from approximately ¥1 trillion to ¥2 trillion by FY2035, primarily through financing for data center construction in the United States. The loans will be provided through project finance rather than equity investment, using rental income from long-term lease agreements as the source of repayment.
The typical project finance structure involves a developer establishing a special-purpose company, which owns the facility, while a major IT company serving as the tenant enters into a long-term lease agreement. Financial institutions then lend funds based on the rental income. Nippon Life aims to achieve an average spread of more than 2% by applying this approach to projects involving major US data center operators.
The scale of demand for data centers is one reason for investing in the United States. The US is the world's largest data center market, and data centers are expected to account for a substantial share of electricity consumption. In Japan, meanwhile, data centers are concentrated in major metropolitan areas, where available grid capacity is limited, so overseas projects are often prioritized as targets for funding.
Nippon Life is also considering large-scale projects in Japan, citing a data center project in Akita Prefecture as an example, and is considering lending for domestic data center construction as well. In the US project finance market, banks generally provide construction loans and syndicate part of them to other financial institutions to diversify risk. This reflects a division of roles with life insurers, which seek to provide long-term funding.
Nippon Life plans to establish a specialist team in the United States around 2027, with the aim of strengthening its ability to identify and select projects with high-quality tenants. Practical issues, including foreign exchange risk and the repatriation of overseas earnings to Japan, will also require attention.