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Friday, Aug. 29, 2003
IRCJ tackles small potatoes in its initial rescue bids
By TOMOKO OTAKE and MAYUMI NEGISHI
The state-backed Industrial Revitalization Corp. of Japan put condominium builder Dia Kensetsu Co. and two other companies under its control Thursday, making its first, long-awaited moves to turn around the nation's sick industries.
The seven-member Industrial Revitalization Committee officially approved the purchase of loans extended to Tokyo-based Dia, Usui department store, based in the city of Koriyama, Fukushima Prefecture, and Kumamoto-based bus operator Kyushu Industrial Transportation Co.
The first picks betray public expectations for the IRCJ, which, as its name suggests, is supposed to restructure the nation's debt-ridden industries.
"My first impression is, 'Oh, they're not big companies,' " said Motoya Kitamura, a buyout expert at Mitsubishi Research Institute. "The IRCJ seems to have had a hard time attracting firms, and many of the firms that came seeking its advice were unsalvageable."
The IRCJ debuted in May with much fanfare, armed with 10 trillion yen to buy up loans extended to financially struggling companies. But creditor banks have dragged their feet in bringing cases to the IRCJ because its debt-pricing rules and restructuring styles were ambiguous.
"For banks, the IRCJ is only one of many options to dispose of bad loans," Kitamura said.
As a result, two of the firms selected are relatively obscure and based in rural areas. Their resuscitation will do little to cure the nation's economic woes.
IRCJ officials replied that the first cases could have larger implications.
"There are 400 bus route operators nationwide, and I have heard that there are many that are searching for ways to survive," said Shinjiro Takagi, chairman of the Industrial Revitalization Committee. "I hope Kyushu Industrial Transportation Co. will become a model of improved profitability (for those operators)."
But Seiji Murata, administrative vice minister of the Ministry of Economy, Trade and Industry, acknowledged the chasm between public expectations and the IRCJ's work over the past four months.
"You must be feeling that the number of companies (to be placed under the resuscitation program) is not enough and that the companies to be rescued are not (big) enough," he told reporters at a regular news conference Thursday in the lead up to the IRCJ's announcement.
IRCJ President Atsushi Saito said the revival body is not propping up "zombie" deadbeat firms.
"Say Kyushu Industrial Transportation Co. goes bankrupt," he said. "Four thousand people would be forced out of work. Its business partners, including gas dealers, would all go under. What could be born out of this? Our job is to find some way, any way, to let companies live."
Experts said the IRCJ might find its niche if it succeeds in mediating the conflicting interests of creditor banks, which often number dozens per debtor, and getting them all to agree to a restructuring plan that includes substantial debt waivers.
Meanwhile, Dia President Kazumi Shimotsu expressed gratitude.
"The decision (by IRCJ) to support us is very welcome for our revival efforts," Shimotsu told a news conference in Tokyo.
"But it is very regrettable that we have caused a lot of anxiety and trouble for the general public, financial institutions, our clients, business partners and shareholders."
The condo developer ended up with negative net worth of 72.5 billion yen after losing 88.8 billion yen during the year through March, as the prolonged economic slump and delays in construction schedules dented its condo sales.
The firm said it will seek a 132.7 billion yen bailout package from its main bank Resona and other lenders through a combination of debt waivers and debt-for-equity swaps.
The IRCJ is trying to get apartment rental service operator Leopalace21 Corp. involved in bailing out Dia Kensetsu.
As for Kyushu Industrial Transportation Co., the IRCJ will swap the loans it purchases from the company's creditor banks for equity and acquire a majority stake in the bus operator.
The performance of the IRCJ, which has recruited more than 120 turnaround professionals from major private equity funds, including the Cerberus group and Ripplewood Holdings, should provide a litmus test of how the mix of Western and Japanese expertise will play out in the changing cultural and economic contexts of Japan.
While many Japanese remain skeptical about the idea of outsiders -- especially foreign buyout funds -- giving management directives, there seems to be a wider public acceptance of foreign capital pushing change in debt-ridden companies.
The work of Carlos Ghosn, the former executive of French carmaker Renault SA who has led the dramatic turnaround of troubled automaker Nissan Motor Co., is most often cited as a successful example.
Kenji Ueda, executive director at Ripplewood Japan Inc., said the IRCJ would benefit if it selected a foreigner as an executive of the firms to be resuscitated.
"A non-Japanese has a better chance of questioning assumptions and looking at accepted practices differently," he said. "Sometimes the largest obstacle to a turnaround is the thought 'that's not possible.' . . . In my opinion, turnarounds work best when you have a genuine mix of both foreign and Japanese approaches."