Japan’s Mitsui OSK Lines said on Thursday that it concluded a syndicated “transition loan” to fund the construction of Japan’s first two LNG-fuelled ferries.

The Sunflower Kurenai and Sunflower Murasaki, each of them capable of carrying 714 passengers, are under construction at Mitsubishi Heavy Industries’ Shimonoseki shipyard.

Upon delivery in December 2022 and March 2023, the pair will operate between Osaka and Beppu.

The shipping conglomerate said this "two-digit billion yen" deal was the first transition loan as defined by the Japanese government but did not provide details on the exact loan amount and repayment period.

Tokyo has laid out its own taxonomy guidelines for financing deals whose proceeds are used to promote energy transition after pledging to achieve net-zero greenhouse emissions by 2050.

The Development Bank of Japan and Sumitomo Mitsui Trust Bank served as the arrangers for the loan, while Sumitomo Mitsui Banking Corp was the co-arranger.

“On top of the three banks, this transition loan was jointly provided by 10 local financial institutions located mainly in western Japan, near the routes on which the two ferries will be launched, and close to the shipyards where they will be built,” MOL said in a statement.

The lenders are Yamaguchi Bank, Higo Bank, Oita Bank, Kitakyushu Bank, Yokohama Bank, San-in Godo Bank, Hiroshima Bank, Iyo Bank, Ehime Bank and Kyoto Bank.

The loan conforms to the Climate Transition Finance handbook published by the International Capital Market Association and the Green Loan Principles by the Loan Market Association.

The LNG-powered ferries can reduce CO2 emissions by more than 20%, can cut NOx by 85% compared to conventional ships and have no SOX emissions, according to MOL.

“These vessels are also expected to contribute to a modal shift in Japan in addition to playing a key role in a critical maritime infrastructure that supports the movement of people and commodities in western Japan,” MOL added.

Major Japanese shipping firms have shown strong appetite for transition finance after vowing to reduce greenhouse gas emissions from their operations.

In July, NYK Line raised ¥20bn ($183m) via the sale of two tranches of transition bonds to develop low-emission shipping in the decades to come.

K Line has also announced it is planning a transition loan by the end of September. The syndicated deal will be arranged by Mizuho Bank, but further details are not available.