Japanese Companies Accelerate Sales of Assets : Retreat: Sellouts, not buyouts, have become the norm for brash upstarts.
The bursting of Japan’s economic bubble of inflated land and stock prices is leading to a return to the old ways of doing business here.
Brash upstarts who amassed wealth and power from speculation in the 1980s and challenged the Establishment have been forced to retreat.
Take, for example, Shuwa, the Japanese real estate firm that placed ads in U.S. newspapers in 1987 that read: “If you followed the Shuwa Group’s 1986 acquisitions, stay tuned for future developments.” At the time, Shuwa had just purchased the Arco Towers in Los Angeles and the ABC Building in New York.
Now Shuwa reportedly is sagging under the burden of repaying principal and interest on accumulated debt estimated at $8.5 billion. Instead of buyouts, sellouts have become the word of the day.
To raise $204.2 million to help repay its debts, the real estate firm sold--at a reported loss of about $448 million--25.46 million shares of the stock (17% of the total) it had accumulated in Matsuzakaya, a prestigious department store chain.
Barely a week later, Shuwa sold off 587,000 shares of Isetan, a Tokyo-based department store chain. In both cases, Shuwa sold its stocks directly to longstanding corporate shareholders in each firm.
The Isetan sale did not change Shuwa’s ranking as the department store chain’s No. 1 shareholder (29.2% of total equity). Moreover, the real estate firm still holds notable chunks of two other retail chains--Nagasaki-ya and Inageya--although Shuwa is reportedly negotiating to sell those shares as well.
Matsuzakaya’s management, at least, can relax once again, comfortable in the knowledge that its traditional shareholders will make no demands for change.
Minebea, a firm that made a name for itself with mergers and takeovers during the boom, also finds itself on the other end of the game today. And, again, “outsider” individual shareholders appear to be the losers.
In 1984, the firm, which is the world’s largest producer of precision ball bearings, entered the semiconductor manufacturing business and built a factory to produce chips on order for British companies. It was one of the last major expansions for Minebea before its aggressive and merger-minded president, Takami Takahashi, stepped down. He died in 1989.
Now, Minebea is selling its subsidiary, NMB Semiconductor Co., to Japan Steel Corp., the world’s largest steelmaker.
Minebea agreed to cut the $626.2-million debt its subsidiary has accumulated to $255.2 million by the end of February, then sell the chip subsidiary to Japan Steel Corp. for a quarter of the market price.
Meanwhile, the sale was expected to strengthen Japan Steel Corp.’s moves to become the newest Japanese competitor for American chips makers, part of a restructuring aimed at reducing reliance on steel production for profits.
The main victims of the bursting bubble, by far, are Japan’s banks, among them some of the biggest speculators. Again, attempts to cope with the banks’ troubles point to a return to the old ways.
Lured by a myth that land prices could not fall, banks and other financial institutions provided seemingly limitless credit to any company that wished to invest in real estate, and took claims on the holdings as collateral.
Real estate market prices have fallen far below the value of those claims. Landowners who borrowed heavily to acquire their holdings, such as Shuwa, are pinched to repay their loans. Banks, in turn, are in a squeeze to make ends meet.
Because Japan lacks full-disclosure laws, no one knows just how big the pile of bad loans has become. (Credit Suisse, Japan, estimates they could total “well beyond $340.3 billion”
The latest piece came in the form of a Finance Ministry plan to rescue eight teetering housing finance companies. Banks, which own most of the companies’ capital and put up most of the money for their home loans, would forgo $36 billion a year in interest payments due them for the next 10 years, the ministry proposed.
Credit Suisse reported that the finance companies were sagging under the weight of at least $51 billion worth of bad loans.
Until recently, banks had received interest at rates of 6% a year on their loans to the housing finance companies, which had charged about 8% to the home buyers. Under the Finance Ministry plan, banks that made loans to their own subsidiaries would forgo all interest payments.
The nation’s seven trust banks would be hit the hardest. Together, they would give up to $851 million a year in interest, or about half of the net business profit they recorded in fiscal 1992.
The mess in housing finance corporations and other similar loan crises were widely viewed as the major reason for the Bank of Japan’s Feb. 4 decision to cut its central discount rate to a historic low of 2.5%.
Fuji Sogo Research Institute estimated that reducing the rate at which the central bank loans funds to commercial banks by 0.75%--while banks cut their prime rates to their best customers by only 0.5%--would hand all banks in the country a windfall profit of $1.7 billion.
Shizuka Kamei, a ruling Liberal Democratic Party policy board member, called the move a “sleekly disguised subsidy.” As such, the Bank of Japan’s action also appeared to symbolize a return to the old ways of doing business.
