Basic Agreement Concluded for Integration of Shield Tunneling Machine Business to create global leader

The five companies expect to conclude a binding formal contract this summer which will outline the conditions for the establishment and operation of the new company, and aim to realize the business integration by January 2016 subject to customary approval by the relevant authorities.

Under the agreement, JTSC and MHI-MS will split off their shield businesses which will be transferred to the new operating company. The new operating company will be positioned as an IHI consolidated subsidiary with JTSC and MHI having capital contribution ratios of 60% and 40% respectively.

The domestic market for the shield tunneling machinery - large-scale equipment used to excavate tunnels for subways, roads, sewage lines and public utility conduits, and others - is expected to rapidly expand in the run up to the 2020 Olympic and Paralympic Games in Tokyo, driven primarily by large projects such as the Tokyo Outer Loop Road and the Linear Chuo Shinkansen (Bullet Train). However, after the Olympics, there is expected to be a significant drop in domestic demand due in part to the conclusion of maintenance on Japan's highway network.

However international demand for shield tunneling machinery is expected to grow significantly due to the need for infrastructure maintenance and subway route expansion. Such projects include the development of inland urban areas in China and India and further urbanization in ASEAN nations, the Middle East, Turkey and other areas.

In order to ensure the continued existence and expansion of the shield tunneling machinery business in the medium and long term, there is a need for a business organization that can reliably capture growing domestic demand while also accelerating expansion overseas. The five companies reached today’s basic agreement based on this common recognition.

The integration of the shield tunneling machinery businesses of JTSC and MHI-MS will deliver significant technology synergies and will further reinforce the competitive strength of the companies. JTSC was established in November 2009 by IHI and JFEE and commands the top domestic market share in the shield tunneling machinery business. MHI-MS has advanced technical capabilities and a proven track record in the global market. The five companies will continue to take concrete steps and actions toward the integration of their businesses into the new operating company so that it becomes a leading shield tunneling machinery manufacturer in the global marketplace.