Airbnb, Uber woes show Japan does not share easily

Meal delivery service UberEATS has been a hit in Tokyo since arriving in 2016, but its ride-sharing counterpart had been having a difficult time setting up shop in Japan. (AFP)
Updated 27 June 2018
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Airbnb, Uber woes show Japan does not share easily

TOKYO: Thousands of Airbnb reservations scrapped, Uber reduced to delivering food: life is hard in Japan for giants of the sharing economy, stuck between tough regulation and popular suspicion.
Japan may be the world’s third-largest economy and a high-tech hub but it has been surprisingly slow to warm to the sharing economy that has disrupted markets across the globe.
According to 2016 figures compiled by research institute Yano the sharing economy accounted for ¥50 billion ($455 million) in Japan.
While that’s a 26 percent year-on-year rise, it is a drop in the ocean compared with markets in Europe, the US or China, which are worth tens or hundreds of billions of dollars.
This is partly due to confusion among the public about what the sharing economy is: only 2.7 percent of the population are familiar with the concept, according to a 2017 survey by PwC professional services firm.
Strict local regulations have also held back the sector — as flat-sharing firm Airbnb found out to its cost recently.
On June 15, a new law came into effect that sought to regulate the short-term rental sector.
Although welcomed by Airbnb as a way to clear up the legal grey zone in which it was operating, the new law has become a double-edged sword, with thousands of owners forced to remove property after failing to comply with it.
“This stinks — and that’s an understatement,” fumed Airbnb as it announced it was canceling thousands of reservations with owners who had failed to obtain a registration number by June 15.
In addition, the law prevents owners from renting out properties for more than 180 nights per year and local authorities can impose further restrictions.
In the tourist magnet of Kyoto for example, rentals in residential areas are only allowed between mid-January and mid-March, the tourism low season.
Such restrictions are in effect choking the sector, says Hiroyuki Kishi, a former official at the economy ministry and now professor at Tokyo’s Keio University.
“Vested interests are so strong in Japan,” he said, regretting that such measures are coming into force “only two years before the Olympic Games” when Japan hopes to welcome 40 million tourists.
For Airbnb, the laws seek to protect the hotel industry and ryokans — traditional Japanese inns — whereas the taxi lobby has made it difficult for ride-sharing app Uber to set up shop in Japan.
“To promote the sharing economy, we have to loosen regulations” to allow new players to enter the market, said Kishi.
He believes that despite the “Abenomics” reform efforts of Prime Minister Shinzo Abe, the government has “no intention” of opening up the sector “for fear of a backlash in sectors which have enjoyed a monopoly until now.”
Sharing economy firms have faced pushback elsewhere too, with Uber being accused of skirting regulations and making long-standing jobs obsolete, and Airbnb criticized for pushing up prices and transforming residential areas in many popular tourist destinations.
Takashi Sabetto, from an association that aims to promote the sharing economy, said in Japan “public opinion is very much against services like Airbnb and Uber.”
“We have tried to change this mentality but it is very difficult. It takes time,” added Sabetto.
One reason is that “Japanese are very protective of their privacy.”
The culture of sharing is not ingrained in society and — in the case of Airbnb — they do not like the noise and security risk caused by a procession of tourists in their backyard, he said.
In addition, unlike in many developed economies, the quality of service provision is very high in Japan. Hailing a taxi in a major city rarely takes more than a few seconds, lowering demand for Uber-type services.
Despite this bleak picture, there are some successes, notes Sabetto, with younger generations showing “a greater interest” in the sharing economy.
Car- and bike-sharing schemes are taking off and meal delivery service UberEATS has been a hit in Tokyo since arriving in 2016.
But local start-ups struggle to get financing, Sabetto said, in a country that tends to pride “monozukuri” — or craftsmanship — above innovation.
Some firms are moving away from the cities into the countryside, where a steady trend of depopulation has made sharing economy services more attractive.
Uber last month said it would launch a pilot program this summer to hook up tourists and residents with available drivers in the western Awaji island.
But Sabetto said a change in culture was needed for the sharing economy to really take root.
“I would like foreigners that are aware of the sharing economy to make their voice heard more to change the situation,” he said.


India’s small renewables firms fighting consolidation wave

Updated 30 min 8 sec ago
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India’s small renewables firms fighting consolidation wave

  • With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall
  • Besides loans, other funding options have been dead ends for the smaller companies, further limiting growth opportunities

MUMBAI: Small to mid-sized renewable energy companies in India are starting to look like attractive takeover targets as lenders and investors withhold funds, worried by the stiff competition, weak bond markets, low tariffs and high debt besetting the sector.
The small companies’ difficulty in raising cash is keeping them away from government power project auctions, restricting their growth and crippling their ability to refinance loans, said a consultant from a top global consultancy firm.
With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall, potentially keeping India from its renewable energy targets, said the consultant, who did not wish to be named as he is directly involved with a company that canceled a bond issue.
“India’s solar industry is becoming a big boys’ club,” said Rahul Goswami, managing director of Greenstone Energy Advisers.
In a few years, there may be only a few big companies and a few regional firms active in India’s renewable sector, he said.
The trend goes back at least to 2016, when Tata Power bought solar and wind company Welspun Renewable Energy, but the pace is expected to pick up.
“Smaller players are being squeezed out ... due to two main factors: cost of equipment and ... financing,” said Alok Verma, executive director at Kotak Investment Banking, an arm of Kotak Mahindra Bank.
One of India’s largest renewables companies, Greenko Group, said in June that it was buying 750 megawatts (MWs) of solar and wind assets from Orange Renewables, because the Singapore-based company saw few opportunities for growth. The deal has yet to be closed.
Essel Infra, with a renewable power capacity of 685 MWs, and Shapoorji Pallonji Group’s 400-MW solar arm are also in talks to sell off their assets, one firm and two banks doing the due diligence for these companies have said.
Besides loans, other funding options have also been dead ends for the smaller companies, further limiting growth opportunities.
ACME Solar postponed an initial public offering (IPO) announced in September last year as the proposed share issue did not generate enough interest from investors, confirmed a banker who was directly involved in the listing attempt.
Mytrah Energy, a major mid-sized renewables company, called off a $300 million to $500 million bond issue earlier this year as that option also went dry for the sector, and it canned IPO plans as well, said a separate banker directly involved there.
The companies have all declined to comment.
This dearth of financing and trend toward consolidation could be a significant threat to India’s target of 175 gigawatts (GWs) of renewables capacity by 2022, up from 71 GWs now, some analysts said.
Others said a concentration of bigger players, with more cash and better financing, could mean things move faster.
“Consolidation in the renewable energy industry augurs well for the overall success of the program ... Large players have access to required capital at reasonable rates and can procure the latest technology,” said Debasish Mishra, head of Energy, Resources and Industrials at Deloitte Touche Tohmatsu India.
Tata Power, one of India’s largest power generators, said in May it plans to invest $5 billion to increase its renewable capacity in India fourfold over the next decade to 12 GWs.
More than doubling India’s renewables capacity by 2022 will require $76 billion, including debt of $53 billion, the Ministry of New and Renewable Energy said in July.
Another problem in India’s renewable sector is debt.
“Many mid-sized firms have taken debt to fund their equity,” the partner of an investment firm said, adding that many such companies will need financial restructuring or have to put themselves up for auction.
This model of financing debt through equity is called mezzanine financing and tends to involve high interest rates and an option to convert debt to equity in future.
Both ACME and Mytrah are funded by Piramal Finance Ltd. via mezzanine financing, according to statements by the companies at the time of funding.
For lending banks, this quasi-equity is seen as debt, making the liabilities of these companies look higher than usual, said the partner, who asked not to be named. The investment firm handles all kinds of financing, including mezzanine.
When companies with mezzanine financing go to banks for funds for upcoming projects, banks ask them for higher collateral or offer less cash in loan, said Kotak’s Verma.
Fitch Solutions said in a note last week that India would likely miss its renewable capacity targets due to “risks stemming from bureaucratic, financing and logistical delays.”