Tokyo tests the waters as Asia embraces bond financing

Japan’s top-ranked university is offering the country’s first higher education-linked bond, as Asian campuses embrace a financing model pioneered by leading Western institutions.

The University of Tokyo is seeking to raise ¥20 billion (£142 million) from a 40-year bond issue, which observers have seen as being driven by the steady decline in state funding for higher education in Japan. If the issuance – mooted for next month – goes ahead, Tokyo would be the first university to take advantage of a June revision of a financing law that had previously restricted such fundraising to university-linked hospitals or other limited projects.

Akiko Morozumi, associate professor of higher education at Tokyo, told Times Higher Education that the bond issuance was proposed at a government meeting attended by the university president, Makoto Gonokami. The regulation was “revised at an unprecedented speed, and several research universities are expected to follow”.

“Increasing external funds is an important issue for national universities amid the reduction in recurring expense subsidies, and it will be necessary not only to issue bonds but also to increase fundraising,” Dr Morozumi said.

She also recommended that universities recruit more “excellent staff” to work in soliciting donations.

Futao Huang, a professor at the Research Institute for Higher Education at Hiroshima University, has published research about the “gradual and steady drop in the amount of government expenditure in both national and public sectors” in Japan.

He told THE that government funding has been cut for all national university corporations by 1 per cent annually since 2004, when those institutions were first incorporated.

Professor Huang said that the latest move was “a big deal” and it was possible that other institutions would follow Tokyo’s move in issuing bonds.

He said that the “continual decline in the number of 18-year-old domestic students” because of demographic shifts, and mounting competition between institutions for international students, had increased the financial pressure on universities.

Some commentators have said that the use of bonds could open up universities’ operations to the public.

“Letting [Japanese universities] sell bonds to the public to pay for research projects will help increase transparency about how the institutions are run,” Bloomberg reported, citing the Education Ministry.

In recent years, international institutions, including Oxford, Cambridge, Harvard and Princeton, have turned to bonds for fundraising.

That trend seems to be growing this year as institutions face budget cuts as a result of the Covid-19 pandemic. According to data released by Dealogic in August, global university- and college-linked bond sales in 2020 are already double what they were for the whole of 2019.

While most activity is happening in the West, Asian universities are also beginning to take part.

In May, the National University of Singapore raised S$300 million (£166 million) through Asia’s first university-linked green bond.

However, there may be pitfalls in using bond financing. In China, bonds can be sold via companies related to universities, such as Tsinghua Unigroup or Peking University Founder Group. However, a 2019 sell-off of bonds issued by those two firms, which caused prices to drop to record lows, caused concern about “the strength of state support”, Bloomberg reported.

joyce.lau@timeshighereducation.com