Daiei reorganizing in
$3.2-billion bailout

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By Yuri Kageyama
Associated Press

TOKYO >> Japan's biggest retailer announced a massive bank bailout today that underlined the depth of this nation's economic troubles while raising questions about the government's commitment to reforms.

The $3.2-billion bailout of Daiei from its three major lenders came with the blessing of Prime Minister Junichiro Koizumi, who has made cleaning up the bad-debt crisis at Japanese banks the centerpiece of his reform program.

The restructuring should not affect Hawaii's four Daiei stores, said General Manager Herbert Gushikuma.

"The word we got was that Hawaii operations would not be affected by this," he said.

The three-year plan obliges Daiei, with $14 billion of debt, to sell off hotels, restaurants and other non-core businesses. In return, the banks will forgive some debt, swap debt for equities and other measures.

Daiei employs 100,000 people, including nearly 70,000 part-time workers.

Under its recovery plan, Daiei will shed 50 of its 169 subsidiaries in three years, close money-losing stores, sell discount chains and reduce debts to under $7.5 billion.

Daiei will keep its 60 percent stake in the Fukuoka Daiei Hawks, a professional baseball team, but will sell securities backed by the Fukuoka Dome stadium and its hotel.

It promised to cut 1,000 jobs, or about 3 percent of its group work force, at the parent company. About 5,000 jobs will be lost from selling businesses.

Daiei was once respected as an innovator introducing competitive pricing and Western-style large stores. But the nation's 10-year economic downturn and the emergence of rivals have taken their toll.

The United States has been prodding Tokyo to fix the bad debt problem. But toppling a mammoth like Daiei may have proved too much for Koizumi.

The government has argued Daiei's collapse could cause social damage and financial instability. Koizumi defended the Daiei bailout as a flexible response to a potential crisis.

"In a free-market economy, the efforts of the private sector are fundamental," Koizumi said. "It's a question of balance."

Over decades of growth through the 1980s, Japan has stuck to a system of lifetime employment. Long sheltered by the government, big-name companies almost never failed.