TOKYO >> Development Bank of Japan aims to promote "enhanced quality of life" in Japan. Yesterday, the state bank extended that mission to propping up Daiei Inc., which owes its lenders $13.5 billion. Daiei may be model for
future government bailoutsJapan's development bank is
propping up the ailing retailerBy Tim Kelly
Bloomberg News
Development Bank's involvement in Daiei's second bailout this year suggests the state may become a lender of last resort to companies cut off by private banks. It also suggests big firms like Daiei, which employs 96,000 people, are exempt from a drive to mop up ¥52.4 trillion ($421 billion) of bad loans.
The state-run lender, which will contribute a sixth of a ¥60 billion fund for Daiei, is in talks with other Japanese companies to make investments in similar funds, said Development Bank Governor Takeshi Komura. "If it's a benefit to the Japanese economy, then we will consider other funds," he said.
Development Bank is among eight state financial institutions that use public pension funds to help mid-sized companies and build public projects. Its involvement in Daiei comes seven months after UFJ Holdings Inc., Mizuho Holdings Inc. and Sumitomo Mitsui Banking Corp. agreed to waive some loans as part of a ¥520 billion rescue package.
"It is a clear message that the government is rescuing them (Daiei) from going bankrupt," said Yasuhiro Shinbayashi, who helps manage ¥150 billion at UFJ Asset Management Co.
Japan is poised to embark on its third bank bailout in four years to tackle the bad loans that have throttled economic growth. In two earlier bank bailouts that used public money, Japan's seven largest banks received a total of ¥9.3 trillion in 1998 and 1999.
On its Web site, the bank says it makes loans to promote "sustainable development," citing advice and financing it has provided for projects such as the Universal Studios Japan theme park in Osaka.
Some of the most indebted companies on Japan's Topix index may also become recipients of Development Bank aid, some analysts said. They include Kumagai Gumi Co., which had 34 times as much debt as equity at the end of March and received ¥430 billion of debt waivers in March 2001.
"If the commercial banks, in particular Sumitomo Mitsui, are not ready to help again, the government-related banks may help," said Masatoshi Shioiri, an analyst at Deutsche Securities Ltd.
Kumagai's restructuring plan lasts until 2010, and with the recent pressure to clean up bad loans, that's "far too long," Shioiri said. "Kumagai may be a candidate," he said.
Other heavily indebted companies include Daikyo Inc., a condominium builder that had the fourth-highest debt-to-equity ratio among the Topix companies as of March 31. It received a bailout of ¥470 billion from its lenders last month. Another is consumer-credit company Orient Corp., which received a waiver for ¥133 billion of loans from Mizuho last month.
The Development Bank's budget this fiscal year is ¥1.2 trillion, half of which comes from public pension funds and postal savings accounts. The remainder comes from a mixture of government guaranteed bonds and non-government guaranteed agency bonds, according to spokesman Masamitsu Kawasumi.
"Who will take responsibility if the DBJ fails in saving the companies?" said Naoto Odagiri, and analyst at BNP Paribas Securities Japan. "That's another fact that has to be clarified. Being a public bank, they have the responsibility in explaining that.'
Daiei's shares fell below ¥100 early last week, a few days after Financial Services Minister Heizo Takenaka first said "no company is too big to fail." They have since recovered, closing at ¥149 , up 7.2 percent, yesterday.
The retailer amassed its debt in the 1980s and 1990s to buy real estate that has since lost as much as 70 percent of its value.
Daiei Inc. today reported fiscal first-half profit increased fivefold.
Japan's third largest retailer reported group net income of ¥140.5 billion yen ($1.12 billion), up from ¥26.2 billion a year earlier.