October 15, 2004
Too tired to think of a catchy title, but it's about Daiei
Daiei has finally given up on its hopes of independently finding private sector funds for its desperately needed reconstruction. Under pressure from its three main creditors, the largest of whom, UFJ, is concurrently struggling with its own financial troubles, Daiei broke down and has asked the government-run International Revitalization Corporation of Japan (IRCJ) to provide funds for the company’s revitalization.
Daiei had been facing a Tuesday (10/12) deadline, set last week by the IRCJ, after which the IRCJ indicated it may not extend its help. When the deadline passed, the IRCJ withdrew its offer, and its assistance came only as a last minute negotiation between Daiei, its creditors, and IRCJ officials was pieced together.
According to the Daily Yomiuri, “sources close to the case revealed” that Daiei had hinted that it hoped for assistance from the government-run Resolution and Collection Corporation (RCC), which would have allowed it more control over its rehabilitation plans, including choosing external creditors. At the time of its decision, it had been allowing external private sector asset investigation by foreign groups, but has since ceased these operations.
To better understand Daiei’s decision, it is helpful to consider the likely positions of the major actors involved. There is a strong possibility that behind the three banks’ refusal to extend further funds is pressure from the Financial Services Agency (FSA) to meet the non-performing loan (NPL) targets set for March 2005. In addition to past debt, Daiei’s three main creditors have provided an additional total of 250 billion yen in two separate bailout packages during the past two years. By selling loans to the IRCJ, these banks are able to reclassify them, thus shrinking their total holdings of non-performing assets.
As suggested by today’s Asahi print edition’s page 4 analysis * of the situation, this would be in keeping with Takenaka’s plan to reduce NPLs. The paper quoted the Prime Minister as sounding supportive in saying that the NPL problem, “will be normalized next year in accordance with the plan. Things are proceeding steadily.”
The article goes on to suggest that the desires of others involved might not be in accordance with the FSA however. The Ministry of Economy, Trade, and Industry for example had been a strong supporter of Daiei’s effort to revitalize itself using private funds. METI Minister Nakagawa has been quoted as saying, “Things that the private sector should do should be left to the private sector.”
It is tempting to suppose that handing Daiei’s loans over to the IRCJ keeps it out of the hands of foreigners, for now anyway. Still, it’s difficult (for me at least) to say how serious either Daiei or potential foreign investors might have been to carry through with a deal independently of the Japanese government.
This is especially the case given that one of the foreign contenders happened to be Ripplewood Holdings, owner of Shinsei Bank, which in June 2002 demanded repayment of 100 billion yen in loans to Daiei. For all the talk about the harshness of the IRCJ, one might be caused to wonder, would Daiei have honestly been willing to undergo Ripplewood’s knife a second time?
There is still of course a chance that foreign money could be involved in the Daiei affair. The IRCJ will now be faced with the decision of what to do with each of Daiei’s 100 plus divisions. Wal-Mart still may be interested in Daiei’s large-scale supermarket operations, as may be some of Daiei’s Japanese rivals.
* Sorry for not posting a link to this, but Asahi Shimbun unfortunately does not make all of its content available online. For anyone interested and with access to the Asahi, the story is titled 「ダイエー再生機構決断の舞台裏‐官邸、水面下で誘導」and is in the upper right hand corner of page 4.
Daiei had been facing a Tuesday (10/12) deadline, set last week by the IRCJ, after which the IRCJ indicated it may not extend its help. When the deadline passed, the IRCJ withdrew its offer, and its assistance came only as a last minute negotiation between Daiei, its creditors, and IRCJ officials was pieced together.
According to the Daily Yomiuri, “sources close to the case revealed” that Daiei had hinted that it hoped for assistance from the government-run Resolution and Collection Corporation (RCC), which would have allowed it more control over its rehabilitation plans, including choosing external creditors. At the time of its decision, it had been allowing external private sector asset investigation by foreign groups, but has since ceased these operations.
To better understand Daiei’s decision, it is helpful to consider the likely positions of the major actors involved. There is a strong possibility that behind the three banks’ refusal to extend further funds is pressure from the Financial Services Agency (FSA) to meet the non-performing loan (NPL) targets set for March 2005. In addition to past debt, Daiei’s three main creditors have provided an additional total of 250 billion yen in two separate bailout packages during the past two years. By selling loans to the IRCJ, these banks are able to reclassify them, thus shrinking their total holdings of non-performing assets.
As suggested by today’s Asahi print edition’s page 4 analysis * of the situation, this would be in keeping with Takenaka’s plan to reduce NPLs. The paper quoted the Prime Minister as sounding supportive in saying that the NPL problem, “will be normalized next year in accordance with the plan. Things are proceeding steadily.”
The article goes on to suggest that the desires of others involved might not be in accordance with the FSA however. The Ministry of Economy, Trade, and Industry for example had been a strong supporter of Daiei’s effort to revitalize itself using private funds. METI Minister Nakagawa has been quoted as saying, “Things that the private sector should do should be left to the private sector.”
It is tempting to suppose that handing Daiei’s loans over to the IRCJ keeps it out of the hands of foreigners, for now anyway. Still, it’s difficult (for me at least) to say how serious either Daiei or potential foreign investors might have been to carry through with a deal independently of the Japanese government.
This is especially the case given that one of the foreign contenders happened to be Ripplewood Holdings, owner of Shinsei Bank, which in June 2002 demanded repayment of 100 billion yen in loans to Daiei. For all the talk about the harshness of the IRCJ, one might be caused to wonder, would Daiei have honestly been willing to undergo Ripplewood’s knife a second time?
There is still of course a chance that foreign money could be involved in the Daiei affair. The IRCJ will now be faced with the decision of what to do with each of Daiei’s 100 plus divisions. Wal-Mart still may be interested in Daiei’s large-scale supermarket operations, as may be some of Daiei’s Japanese rivals.
* Sorry for not posting a link to this, but Asahi Shimbun unfortunately does not make all of its content available online. For anyone interested and with access to the Asahi, the story is titled 「ダイエー再生機構決断の舞台裏‐官邸、水面下で誘導」and is in the upper right hand corner of page 4.
# posted by Saru : 5:28 PM
