Long-Term Loan Using the Fiscal Investment and Loan Program (FILP)

Outlook on Key Measures
Ensuring safe and reliable transportation and enhancing transportation services (Tokaido Shinkansen and conventional lines)

1 Implementation of Long-Term Loan Using the Fiscal Investment and Loan Program (FILP)In November 2016, JR Central applied for a long-term loan using theFiscal Investment and Loan Program (hereinafter, “FILP Loan”) for 3 trillion
yen (plan) to Japan Railway Construction, Transport and Technology
Agency (“JRTT”). We proceeded to borrow funds sequentially thereafterand secured financing for a planned total of 3 trillion yen in July 2017.
Securing long-term, fixed- and low-interest rate financing using FILP, bytaking advantage of the low-interest rate environment at the time of drawdown, will enable us to mitigate management risk and start the construction
work for the section between Nagoya and Osaka right after the operationof the section between Shinagawa and Nagoya stations. We will actively
promote construction efforts for the Chuo Shinkansen in an aim to moving
up live operation of the entire line by up to 8 years.
The Chuo Shinkansen Project is pursued based on the premise that
JR Central, as a private corporation, covers full cost of construction,
while securing management autonomy in investment and seeing thatsound management and stable dividends are strictly maintained until theconstruction work is fully completed. The FILP Loan poses no change tothis premise.

The advantage we gain from the FILP loan lies in mitigating threemanagement risks, which are interest-rate increase risk, financing risk, andredemption risk. Specifically, since we can secure long-term, fixed- and lowinterest rate funds, we are able to mitigate the risk of interest rates rising in
the future and fix interest payments at a low level for a long period of time.
Under the original plan, the construction cost for the route between
Shinagawa and Nagoya was approximately 5.5 trillion yen, of whichroughly 3 trillion yen was expected to require new financing. By securing

the amount through the FILP Loan, we have the funds needed until live
operation in Nagoya without being considerably impacted by future
economic conditions and interest rate fluctuations, and reduce financing
risk.
Furthermore, since the FILP Loan matures after the construction periodof the Chuo Shinkansen, during which time a large amount of funds isneeded, we are able to build up cash from operating activities to provide
for the redemption of liabilities, thereby also mitigating redemption risk.

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

Complete construction work for the entire line by FY2028

New production of N700A

Upgrading of existing Shinkansen rolling stock

Launch of next-generation commercial rolling stock (mass-production vehicles)(plan)

Earthquake-resistance measures for Nagoya Workshop
FILP Loan scheme

Diagram 1

Long-term, fixed- andlow-interest loan
FILP

Loan under the same terms as FILP
(separate payment of expenses)
JRTT

JR-CENTRAL

redemption

Diagram 2

New production of next-generation limited express train rolling stock using the hybrid method
New production of testing vehicles

redemption

Launch of mass-production vehicles (under consideration)

Illustrated plan of moving up live operation

Earthquake-resistance measures for ceilings of stations
ExistingplanConstruction between
Shinagawa and Nagoya

Management strength
restoration period(8 years)

Move upoperation

Construction between
Shinagawa and Nagoya

Construction between
Nagoya and Osaka

Construction between
Nagoya and Osaka

Live operationin Osaka

Live operationin Osaka

Equal principal
redemption overMoving up live operation by up to 8 years a period of about
10 years

FILP
Loan

Diagram 3

Deferred fixed/low-interest for about 30 years

2nd

3rd

4th

0.6%

0.8%

Borrowing
Date

November 29,
2016

January 16,
2017

March 10,2017

May 17,
2017

July 12,2017

Maturity
Date

November 29,
2055

January 16,
2056

March 10,2056

November 17,
2055

January 12,
2056

SecurityCompletion of website renewal in March 2019 (plan)
Renewal of electric sign boards at ticket gates in Shinkansen stations sequentially fromMarch 2019 (plan) (plan to complete work on “Nozomi” stations by the end of FY2019)

5th500 billion yen 500 billion yen 500 billion yen 750 billion yen 750 billion yen

Interest
Rate

Repayment
MethodEnhancement of train service information provided to customers

Primary terms of financing
1stAmountborrowed

Shinkansen andCommon (Tokaido
conventional lines)

As for the terms of the FILP Loan, the interest rate is the FILP loaninterest rate of the borrowing date, which is fixed throughout the entireperiod. The repayment method is equal principal payment over a
period of roughly 10 years after deferring the payment of principal forabout 30 years, and we will repay the loan over a period of roughly
10 years after the live operation in Osaka when management isstabilized. The funds procured from the FILP Loan will be applied
only for the cost of construction of the Chuo Shinkansen. We ensure
the transparency of funds by setting a trust aimed at segment-basedmanagement.
Since the FILP Loan amounts to a large sum of 3 trillion yen in twoyears, we borrowed the funds in five lots. Diagram 32018

New production of N700S validation test vehicles

Conventional Lines

With a plan to secure FILP-based financing for a total of 3 trillion yen, JR
Central borrowed 1.5 trillion yen in FY2016 and subsequently borrowed theremaining 1.5 trillion yen in FY2017. Funds procured will be applied only tocosts associated with the construction of the Chuo Shinkansen and not for
any other use or investment.
In the material submitted to the Transport Policy Council of the Ministryof Land, Infrastructure, Transport and Tourism in 2010, we indicated in
our outlook that a period of 8 years after live operation in Nagoya will beset to recover management strength. After reducing long-term debt by acertain amount, construction on the route between Nagoya and Osaka will
be initiated while seeing that sound management and stable dividends arestrictly maintained, and ensuring that the balance of long-term debt does notexceed 5 trillion yen throughout the project period until live operation of theentire line. By utilizing this FILP Loan, we are able to reduce this period forrestoring management strength and promote construction efforts in an aim tomoving up live operation of the entire line by up to 8 years. Diagram 22017

Implementation of derailment and deviation countermeasures

3 FILP Loan scheme
Under the FILP Loan scheme, long-term, fixed- and low-interest
rate funds are loaned from the state FILP funds to Japan Railway
Construction, Transport and Technology Agency (JRTT), the FILP
agency. Then JR Central borrows the funds from JRTT under the sameinterest rate and terms. Diagram 1Prior to 2016

Large-scale renovationTokaido Shinkansen

2 Advantage of the FILP Loan

FY

0.9%

0.9%

Fixed throughout entire period

Deferred until
May 2046

Deferred until
Deferred until
Deferred until
September
July 2046
May 2046
2046
Thereafter, equal principal repayment
Unsecured

Chuo Shinkansen Project Using the Superconducting Maglev System

1.0%

Deferred until
July 2046

FY

Prior to 2016

2017

2018

2019

2020

2021

2022

Construction between Shinagawa and Nagoya for the Chuo Shinkansen

2023

2024

2025

2026

2027

2028