19-D-0283

June 26, 2019
JCR Green Loan Evaluation b y Japan Credit Rating Agenc y, Ltd.
Japan Credit Rating Agency, Ltd. (JCR) publishes the results of its Green Loan Evaluation as follows.

JCR Assigned Green 1 to Long-Term Loan
Borrowed by NISSEN KAIUN CO., LTD.
S u b j e c t:

Following loans borrowed by NISSEN KAIUN CO., LTD. .

T

e

:

Long-term debt (commitment-type term loans)r:Syndicate arranged by Sumitomo Mitsui Banking Corporation

Borrowing Amount:JPY 2.8 billion

Date of the loan
a g r e e m e n t:June 26, 2019

Rep a y me n t d ate:

Repayment method:

Use of proceeds

:

L

y
e

p
n

d

e

Commitment period: 1 year + Maximum 9 years after individual loans※ Depending on the age of the vessels to be loaded with scrubbers, the due date forrepayment (period) differs.
Straight-line method of repayment within the respective remaining statutory useful
lives (up to nine years of straight-line method of repayment)
Capital Investment (Establishment of Environmentally Conscious Facilities(Scrubbers)<Green Loan Evaluation Results>
Overall evaluation

Green 1

Evaluation of Greenness(use of proceeds)
Evaluation on Management,
Operation and Transparency

g1
m1

Chapter 1: Evaluation Overview
Established in 1889, NISSEN KAIUN CO., LTD. (Nissen Kaiun) is the owner of ocean-going vessels on the
Hakata island of Imabari City, Ehime Prefecture, and has one of the largest fleets in Japan. In 1959, it reorganized its
own management, and after becoming a joint-stock corporation, it steadily expanded its business scope. Since the1970s, he has entered the field of modern vessels, followed by a far-sea route. Nisshin Kaiun is in the process ofcomplying with environmental regulations and installing ballast water treatment equipment on almost all ships and isactively introducing various types of energy-saving equipment. In response to SOX emission regulations, the ratio of

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https://www.jcr.co.jp/envessels equipped with scrubbers will be increased to the greatest extent possible, and scrubbers will be installed on
almost all vessels in the future.
The subject of this evaluation is a long-term loan (this loan) for which the company borrows syndicated loans
from Sumitomo Mitsui Banking Corporation as the arranger and agent. JCR evaluates whether this loan complies
with the Green Loan Principles established by Loan Market Association and Asia Pacific Loan Market Association in
March 2018.
The proceeds raised through this borrowing will be used to fund the installation of scrubbers, which are equipment
to remove sulfur from exhaust gases on our vessels. The establishment of scrubbers is one of the measures forcomplying with IMO regulations that will become mandatory beginning in 2020. In addition, the scrubbers that arescheduled to be introduced at this time have all cleared the conditions required under the MARPOL Convention(sulfur oxide (SO X) concentration of 0.5% or less), which is considered to have a significant effect on environmental
improvement. In terms of negative environmental effects, there is an increase in CO2 emissions due to power
consumption of scrubbers. However, the power consumption of scrubbers can be handled by existing generators ofships, and the addition of power generators is not required. Therefore, there is no significant increase in CO2emissions due to increased power consumption. It was also confirmed that the scrubber wastewater used complies
with international standards (pH, nitrates, polycyclic aromatic hydrocarbons, etc.) for scrubber drainage by theInternational Maritime Organization (IMO). Based on the above, it is evaluated that the Green Project will contributeto the prevention of air pollution.
With regard to the management of proceeds, SMBC, which is the agent of SMBC, has adopted a commitmentbased approach to proceed management. SMBC draws out proceeds in response to our request, which allows for
tracking and appropriate control. Sumitomo Mitsui Banking Corporation (SMBC), its agent, will also report thestatus of appropriation and impact indicators to all lenders at the end of each reporting period. Based on the above,
JCR believes that a high degree of transparency has been secured in the procurement of proceeds through green
loans.
As a result, JCR assigns “g1” to the "Evaluation of greenness (use of proceeds)" and “m1” to the "Evaluation on
Management, Operation and Transparency", based on JCR Green Finance Evaluation Method. Consequently, JCR
assigns "Green1" as an overall evaluation results to the loan. The evaluation results are described in detail in the next
chapter. The loan is considered to meet the standards for items required by the Green Loan Principles and the Green
Bond Guidelines issued by the Ministry of Environment of Japan.12

1

Gr een Loa n Pr i nc ipl es c ompos ed b y LMA ( Loa n Ma rk et Ass ocia ti on), AP LMA( As ia Pacif ic Loa n Mark et
As s oci at i on)2
Mi nis tr y of t he En vir on men t Gr een B ond Gui deli nes 201 7
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Chapter 2: Current Status of the project on each evaluation factor and JCR's
evaluations
Evaluation Phase 1: Greenness Evaluation
JCR assigns "g1", the highest grade, to "Evaluation phase 1: Greenness Evaluation".
Rationale: 100% use of proceeds of this borrowing is allocated to green projects, considering thefactors described below.
(1) JCR's key consideration in this factor
In this section, we first assesses whether the proceeds will be allocated to green projects that have explicit
improvement effects on environment. Next, JCR evaluates whether an internal department/division which is
exclusively in charge of environment issues or a third party agency prove it sufficiently and have taken
necessarily workaround or mitigation measures, in case of possibility on use of proceeds have negative impact on
the environment. Finally, JCR confirms consistency with the Sustainable Development Goals (SDGs).

(2) Current status of evaluation targets and JCR evaluation
Overview of Use of Proceeds
The use of proceeds for this loan is the introduction of scrubbers, the device that removes sulfur oxides
emitted as a result of the use of vessel fuels.
A SOx scrubber is a cleaning dust collector that feeds dust-containing gas from the bottom, sprays water orother solvents from the top as a cleaning liquid, washes dust-containing gas through droplets, liquid membranes,
air bubbles, etc. It adheres to particles or agglomerates particles, and separates and collects particles. The higher
the amount of droplets, liquid membranes, and bubbles produced, the longer the time of contact with the gas, andthe higher the performance of the gas-liquid separators, the higher the dust collection rate. There are four typesof scrubbers: basin-type, pressurized-water-type, filling-tower-type, and rotating-type, each with its own
characteristics. The sizes are small and can treat a considerably large amount of gas with a high dust collection
rate, but wastewater treatment is required because of the use of cleaning water. The results of deliberations by
the Sub-Committee on Prevention and Management to IMO Pollution held by the Ministry of Land,
Infrastructure, Transport and Tourism indicate that scrubbers are not only able to use inexpensive high-sulfur
heavy oil, but also one of the key measures for smooth responses to the 2020 SOX regulations in order todisperse the demand for low-sulfur fuel oil and stabilize the supply-demand balance and prices of fuel oil.
Scrubbers have the following social and environmental significance:
The MARPOL Convention (the 1978 Protocol to the International Convention for the Prevention of
Pollution by Ships, 1973), which stipulates measures necessary for preventing environmental pollution
caused by ship navigation, regulates SOX emissions and greenhouse gas emissions, and gradually raises theregulated values. Of these, SOX emissions are currently required to use less than 3.5% sulfur in the sea, butwill be reduced to 0.5% from January 2020. The installation of scrubbers meets the requirements of these
SOX emission regulations.
SOX contained in exhaust gases and PM2.5, which is generated secondary to SOX in the atmosphere, cause
risks of human health effects, such as respiratory and cardiovascular diseases, when incorporated into the
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human body. In addition, SOX is converted to sulfuric acid by photochemical reactions in the atmosphere,causing acid rain. SOX regulations contribute to reducing the damage caused by respiratory diseases causedby air pollution and to reducing the environmental impact caused by acid rain.

a.

On the environmental improvement effects of the projecti. 100% of the proceeds are used for the installation of highly environmentally friendly scrubbers, which
are highly effective in improving the environment.
The proceeds will be used to the installation costs of scrubbers. The scrubber to be installed is an open-loopsystem that cleans exhaust gases and particulate matter (PM) containing sulfur oxides (SOx) emitted from theengine using seawater and discharges the seawater into the sea, and a hybrid scrubber system that can beswitched to a closed-loop system.
JCR confirmed from Nissen Kaiun filings that both of these scrubbers met the standards set out in Rule 14 ofAnnex IV of the MAPROL Convention for 2020 and beyond (sulfur content of 0.50% or less). It was also
confirmed that the scrubbers will be implemented in accordance with Rule 14 of Annex VI of the MAPROL
Convention.

ii. The use of proceeds falls under the category of "pollution prevention and management" and "cleantransportation" businesses among the qualified green project categories in the Green Loan Principles.
The use of proceeds for this project is considered to fall under the category of "pollution prevention andcontrol" and "clean transportation" businesses, which have the effect of reducing SOX, among the qualified
green project categories in the Green Loan Principles.
b. Negative impact on the environment
As a negative effect of this project, electricity consumption is expected to increase due to the operation of
scrubbers, and CO2 emissions are expected to increase accordingly. However, the energy consumption of thescrubber is slightly smaller than the energy consumption of the ship as a whole, and it can be handled by theexisting generators of the ship. Therefore, it was confirmed from the estimation results that the contribution
ratio of the scrubber to the total CO2 emissions of the ship as a whole is small.
Seawater used for cleaning in open-loop scrubbers has a lower pH and higher turbidity and nitrate nitrogen than
before water intake. If the discharge is concentrated, it may lead to ocean acidification, ocean water
eutrophication, and accumulation of heavy metals. The scrubbers used in this study were confirmed to be incompliance with international standards (pH, nitrates, polycyclic aromatic hydrocarbons, etc.) for scrubber
drainage by the International Maritime Organization (IMO). In addition, no residue such as sludge is generated
due to the operation of the scrubber. According to the Ministry of Land, Infrastructure, International andTourism's Subcommittee on Pollution Prevention and Response, scrubbers are one of the key measures forsmooth compliance with the 2020 SOX regulations in order to contribute to the stabilization of the supply anddemand of fuel oil by diversifying the demand for low-sulfur fuel oil, as well as the use of conventional highsulfur heavy oil.3
3

Exc erp t ed fr o m t he "Si xt h Meeti ng (P P R6) of t he Subc ommi tt ee on P oll uti on P r event i on a nd Resp ons e( Febr uar y 25 , 20 19) " of t he Mi nis tr y of La nd, Inf ras tr uc t ur e, Tr a nsp ort a nd Tour is m. Acc or di ng t o t he r es ul ts oft he c ommi t t ee's del ib erat i ons, s ome r egi ons ar e now i ntr oduci ng wa st ewa t er ba ns fr om exha ust gas c l ea ni ng
eq uip me nt wit hout pr o vi di ng sci ent if ic e vi denc e. In Japa n, on t he ot her ha nd, t he en vi r onme nta l i mpac t ofeffl uent gas c l ea ni ng eq uip ment b y b i ol ogi cal t ests , c omp onent a na l ys is , a nd s i mul at i on has b een veri fi ed, a nd i t
ha s b een c onc l uded t hat t he poss ibi li t y of effl uent i mp act s on t he en vir on ment i s ext r emel y l ow i n t he s hort a nd
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https://www.jcr.co.jp/enAs a result of the above, the possibility that the establishment of scrubbers will have an impact on theenvironment of marine organisms and water quality is considered to be extremely low in the short and longterm.
c. Consistency with SDGs goals and Targets
With reference to ICMA's SDGs mappings, JCR assessed that JCR would contribute to the following SDGs
objectives and targets.
Objective 3: Good health and well-Being
Target 3.9. By 2030, substantially reduce the number of deaths and illnesses fromhazardous chemicals and air, water and soil pollution and contamination

Goal 9: Industry, innovation and infrastructure
Target 9.4. By 2030, upgrade infrastructure and retrofit industries to make themsustainable, with increased resource-use efficiency and greater adoption of clean andenvironmentally sound technologies and industrial processes, with all countries taking
action in accordance with their respective capabilities

Evaluation Phase
Tr a n s p a r e n c y

2:EvaluationonManagement,

Operation

and

JCR assigns "m1", the highest rating on JCR evaluation Phase 2: Evaluation on Management andOperation and Transparency.
Rationale: These projects have allocated the funding and implemented the business as planner
through a firmly equipped management and operation system and high transparency as described
below.

1 . A p p r o p r i a t e n e s s a n d Tr a n s p a r e n c y c o n c e r n i n g s e l e c t i o n s t a n d a r d a n d
processes of the use of proceeds(1) JCR's key consideration in this factor
This section confirms that the objectives to be achieved through the green loan, the criteria for selecting green
projects, the appropriateness of the process, and the series of processes are appropriately disclosed to investors.

(2) Current status of evaluation targets and JCR evaluationa.

Goal
Nissen Kaiun has been actively responding to the installation of various facilities for energy conservation on
ships, the installation of scrubbers to prevent marine pollution, and ballast water treatment equipment thatmeets the standards of the Ballast Water Management Convention. As a result, ballast water treatment
equipment is being installed on almost all ships.

l ong t er m.
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The quantity of SOX emitted by ships is defined by the MARPOL Convention, which was developed underthe International Maritime Organization (IMO). In the past, it was stipulated that fuel with a sulfur content of
3.5% or less should be used in the general sea area. However, from January 2020, it has been decided that fuelwith a sulfur content of 0.5% or less should be used. In response, Nissen Kaiun plans to install scrubbers witha sulfur concentration of 0.5% or less on almost all vessels in the future.
As a leading ship-owner in Japan, Nissen Kaiun has the objective of taking the lead in environmental
initiatives, and JCR confirmed in the hearings that the establishment of scrubbers through this loan isconsistent with our environmental objectives.
b. Selection standard
Nissen Kaiun uses scrubbers with the ability to comply with the MARPOL Convention as eligible criteria for
the use of the loan proceeds. This case falls under the category of "pollution prevention and control" and"clean transportation" projects, and is selected in accordance with the selection criteria.
c.

Processes
At Nissen Kaiun, Finance Section staff reviewed, assessed, and selected the projects to which the proceeds
were to be allocated in order to ensure compliance with the eligibility criteria. In addition, the person in
charge in the Finance Section presents the project to the Board of Directors and the President makes the final
decision after comprehensive analysis and consider by the Board of Directors.
JCR evaluates that the selection criteria are conducted in a reasonable manner because the roles of eachorganization are clear and the involvement of management in the decision-making process is clear.

These selection criteria and selection and evaluation processes will be disclosed to lenders in this report.

2 . A p p r o p r i a t e n e s s a n d Tr a n s p a r e n c y o f m a n a g e m e n t o f t h e p r o c e e d s(1) JCR's key consideration in this factor
The management method of the procured proceeds is usually assumed to be diverse by the borrower.
JCR assesses whether the proceeds firmly allocated to the green project, the project have internal systems toeasily track the allocation of the proceeds and the money proceeded by the loan will be allocated to the green
project at once. JCR also considers the evaluation of asset management of unallocated money.
It also attaches importance to evaluating the management and operation of the unallocated proceeds, as wellas to confirming that the proceeds procured from the loan will be allocated to the green projects at an earlystage.

(2) Current status of evaluation targets and JCR evaluationa.

The use of proceeds for long-term borrowings subject to this evaluation will be fully allocated the cost of
installing scrubbers. This loan is a commitment-type term loan that promises (commits) disbursement ofproceeds at the request of the borrower at a preset credit line amount and term. The commitment period is set
at one year, so only those who accept applications for withdrawal within one year are allowed to borrowproceeds into the borrower's account. As a result, no unappropriated proceeds are generated.

b.

The proceeds procured from the syndicated loan group are managed collectively by the agent banks. The
borrower submits a scrubber installation bill to the agent at the time of withdrawal, and the agent bank causes
the proceeds to be deposited into the borrower's account. The Borrower controls cash management through6/9
https://www.jcr.co.jp/enthe agent bank. Through these processes, the agent can check that the proceeds have been allocated to thescrubber purchase and installation costs.
c.

A dedicated management system for syndicated loans has been established at the agent bank, and theproceeding status will be managed by the system. The withdrawal records of proceeds are recorded on thesystem and stored by the agent line until the proceeds are fully repaid.

JCR evaluates that cash management is appropriate in light of the fact that this loan will be properly allocated to
the Green Project, that the proceeds will be managed through the agent bank in an appropriate manner, and that
there is no particular concern that the proceeds will not be appropriated.

3. Reporting(1) JCR's key consideration in this factor
This section evaluates whether the disclosure system for investors before and after JCR borrowing is planned in a
detailed and effective manner at the time of green loan borrowing.

(2) Current status of evaluation targets and JCR evaluationa.

Reporting on the proceeds allocation
Regarding the status of appropriation, the amount withdrawn by the commitment method will be disclosed inwriting to the participating banks at the same time as the financial statements are submitted at each Panama
SPC's fiscal year-end.

b. Reporting on environmental improvement effects
As for the effects of environmental improvement, the following reporting will be made available in writing tobanks participating in the syndication at the same time as reporting the status of allocation.
Reduction of pollutants per scrubber
Number of scrubbers installed with this loan

4. Organization's environmental activities(1) JCR's key consideration in this factor
This section evaluates whether the management of the borrower regards environmental issues as a high priority
issue for management, and whether the Green Loan Policy and Process and the selection criteria for Green
Projects are clearly positioned through the establishment of a department specializing in environmental issues orcollaboration with external organizations.

(2) Current status of evaluation targets and JCR evaluation
Initiatives for Nissen Kaiun's Environmental Issues
The company considers environmental initiatives to be a priority management issue when conducting ourshipping business. For example, it complies with various maritime regulations, actively strive to prevent marine
pollution by installing ballast water treatment equipment on all vessels it owns, and strive to conserve energy inthe equipment it uses. As part of the above-mentioned environmental initiatives, this project will mainly
contribute to the elimination of sulfur (SOX). The company plans to install scrubbers on all vessels by 2020. In
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addition, the Board of Directors reviewed the use of the proceeds for this loan and decided by the President toconfirm that the Green Loan Borrowing Policy, selection criteria, and processes have been properly established.
Although there are no departments specializing in the environmental field, JCR has confirmed that whenintroducing scrubbers, it is appropriate to introduce products that comply with various maritime regulations after
obtaining technical information from external organizations. JCR believes that our environmental efforts are
consistent with global trends toward improving the environment of the shipping industry.

■Evaluation result
Long-term loans subject to evaluation are designated as "g1" in the "Evaluation of Greenness(use of proceeds)" and"m1" in the "Evaluation on Management, Operation and Transparency" based on JCR Green Finance Assessment
Method, and therefore "Green1" is designated as the "Comprehensive Assessment". This loan is considered to meetthe criteria for items in Green Loan Principle and MOE's Green Bond Guidelines.
[JCR Green Bond Evaluation Matrix]
Management, Operation and Transparency

Evaluation of Greenness

m1

m2

m3

m4

m5

g1

Green 1

Green 2

Green 3

Green 4

Green 5g2

Green 2

Green 2

Green 3

Green 4

Green 5

g3

Green 3

Green 3

Green 4

Green 5

g4

Green 4

Green 4

g5

Green 5

Green 5

Green 5

Not
qualified

Not

Not

qualifiedqualified

Not

Not

Not

qualifiedqualifiedqualified■ Subject
Borrower: SOUTHERN ROUTE MARITIME S.A. (NOTE 1)[Assignment]
TargetLong-term loan

Borrowing AmountJPY 2.8 billion

Date of Loan Agreement

Maturity dateJune 26, 2019

(NOTE 2)

Evaluation

JCR Green Loan Evaluation :Green1
Evaluation of Greenness:g1
Management, Operation andTransparency:m1(NOTE 1) Ship SPC of NISSEN KAIUN CO., LTD.
(NOTE 2) Commitment period: 1 year + Maximum 9 years after individual loan (repayment period differs depending on the age ofvessels equipped with scrubbers)

Analysts in charge of this evaluation: Atsuko Kajiwara and Akihiro Kondo

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Important explanation of the Green Loan Evaluation
1. Assumptions, Significance, and Limitations of JCR Green Loan Evaluation
JCR Green Loan Evaluation, which is granted and provided by the Japan Credit Rating Agency (JCR), is a comprehensive
expression of JCR's current opinion on the extent to which the funds procured green loans, which are subject to evaluation, areallocated to green projects defined by JCR and the extent to which the management, operation, and transparency of the use ofgreen loans are ensured. JCR Green Loan Evaluation does not fully indicate the extent to which the funds procured from suchgreen loans are allocated and the management, operation, and transparency of the use of the funds are ensured.
JCR Green Loan Evaluation evaluates the appropriation of funds at the time of the Green Loan program or at the time of the loan
execution. It does not guarantee the appropriation of funds in the future. In addition, JCR Green Loan Evaluation does not provethe environmental effects of green loans and is not responsible for their environmental effects. JCR confirms that the effects of thefunds procured green loans on the environment are measured quantitatively and qualitatively by the borrower or by a third party
requested by the borrower, but in principle it does not directly measure the effects.
2. Methods used in the conduct of this evaluation
The methods used in this evaluation are listed on JCR website (Sustainable Finance and ESG in https://www.jcr.co.jp/en)) as
JCR Green Loan Evaluation Method.
3. Relationship with Acts Related to Credit Rating Business
JCR Green Loan Evaluation is determined and provided by JCR as a related business, which is different from the activities
related to the credit rating business.
4. Relationship with Credit Ratings
The Assessment differs from the Credit Rating and does not promise to provide or make available for inspection a predetermined
Credit Rating.
5. Third-Party Evaluation of JCR's Green Loan
There is no conflict of interest related to capital or human resources relationships between the subject of this evaluation and JCR.

■Disclaimers
The information contained in this document has been obtained by JCR from the Borrower and from accurate and reliable sources. However, that such information
may be erroneous due to human, mechanical or other reasons. Accordingly, JCR makes no representation or warranty, express or implied, as to the accuracy, results,
accuracy, timeliness, completeness, marketability, or fitness for a particular purpose of such information, and JCR assumes no responsibility for any error, omission,or result of using such information. In no event shall JCR be liable for any special, indirect, incidental or consequential damages of any kind, including opportunity
loss, monetary loss, which may arise from any use of such information, whether contractual, tort, negligence or other cause of liability, and whether or not suchdamages are foreseeable or unforeseeable. JCR Green Loan Evaluation does not express any opinion on the various risks (credit risk, price fluctuation risk, market
liquidity risk, price fluctuation risk, etc.) associated with the green loan subject to the evaluation. JCR Green Loan Evaluation is a comprehensive statement of
opinion at the present time of JCR and is not a statement of fact and does not make any recommendations regarding risk judgment or the decision to purchase, sell or
hold individual bonds, commercial paper, etc. JCR Green Loan Evaluations may be changed, suspended, or withdrawn due to changes in information, lack of
information, or other reasons. All rights to this document, including data from JCR Green Loan Evaluation, are held by JCR. Reproduction, adaptation, modificationor alteration of this document, in whole or in part, including data from the Green Loan Evaluation, without the permission of JCR is prohibited.

■Glossary
JCR Green Loan Evaluation: JCR Green Loan Evaluation evaluates the extent to which the funds procured from the Green Loan are allocated to the Green Project as
defined by JCR, and the extent to which the management, operation, and transparency of the Green Loan are ensured. Evaluations are graded on a scale of 5,
beginning with the top, using the Green1, Green2, Green3, Green4, and Green5 symbols.

■Status of registration as an external assessor of green finance・ Registration of Green Bond Issuance Supporters by the Ministry of the Environment
・ ICMA (Registered as an observer of the International Capital Markets Association)■Status of registration as a credit rating agency, etc.
・ Credit Rating Agency: the Commissioner of the Financial Services Agency (Rating) No.1
・ EU Certified Credit Rating Agency
・ NRSRO: JCR has registered with the following four of the five credit rating classes of the Securities and Exchange Commission's NRSRO(Nationally RecognizedStatistical Rating Organization. (1)Financial institutions, broker dealers, (2) insurance companies, (3) general business corporations, and (4) government and local
governments. If the disclosure is subject to Section 17g-7(a) of the Securities and Exchange Commission Rule, such disclosure is attached to the news releases
posted on JCR website (https://www.jcr.co.jp/en/).

■ For further information, contact

Information Service Dept. TEL: :03-3544-7013 FAX: :03-3544-7026

Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026

Copyright © Japan Credit Rating Agency, Ltd. All rights reserved.

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