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The Honolulu Advertiser

Posted on: Thursday, November 29, 2001

Daiei debt mounts as bond rating dips

By Miki Anzai and Noriko Tsutsumi
Bloomberg News Service

KOBE, Japan — Daiei Inc. has tapped four-fifths of its $4.2 billion bank credit line, just as a rating downgrade makes it impossible for Japan's No. 2 retailer to raise money by selling bonds.

But President Kunio Takagi said there is still money available on the loan, extended to keep Daiei afloat, and banks will continue their support.

The Kobe-based company doesn't face a cash crunch because "our lenders have repeated they will keep supporting us," Takagi said in an interview.

Takagi said he was angry about Moody's Investors Service's decision in September to lower Daiei's rating two notches to "Caa1," seven steps below investment grade.

"I want Moody's to raise our rating soonest," he said.

The lower rating closes the commercial paper market to Daiei, investors said. The backing of banks is now essential to ensure the survival of Daiei, whose $18.7 billion in debt is a third more than that of retailer Mycal Corp., which failed in September, they said.

"The company has no choice but to rely on financial support from lenders," said Osamu Nakajima, a fund manager with Sumisei Global Investment Management Co. who oversees $1.5 billion in Japanese equities.

Daiei's shares have fallen 39 percent this year, while the Topix index of 100 retailers has dropped 9.3 percent for the same period. The stock plunged to a record of 94 yen on Sept. 25 after the Moody's downgrade and recently traded at 112 yen, down 3.5 percent.

Daiei accumulated debt in the 1980s and early 1990s as it expanded into diverse businesses such as gas stations, Wendy's Old-Fashioned Hamburger Restaurants, the Fukuoka Daiei Hawks baseball team, and Ala Moana Center in Honolulu. Daiei sold the shopping center in 1999 to General Growth Management Inc. for $800 million.

Since then, Daiei has cut debt by selling nearly its entire stake in the convenience store chain Lawson Inc. and shares of Takashimaya Inc., Japan's largest chain of department stores.

By Feb. 28, the end of its fiscal year, Daiei plans to cut additional debt through property sales, management buyouts, and formation of alliances, Takagi said. The company, which has several stores in Hawai'i, will announce details of its plan starting next month, he said.

"As we had promised, we duly cut debts in the first half, and will do so for the second half," Takagi said. "Even if we cannot sell some of our assets, we can still draw money from the credit line."

To channel money into debt-cutting, Daiei hopes to sell assets in the next five years. Takagi declined to say which assets Daiei is considering selling, because "disclosing plans too soon will give possible buyers an unfair advantage."

In recent months, the company has sold part of Recruit Co., a privately held publisher of employment information magazines, and a 25.2 percent stake in Recruit.

Takagi became president in January to revive Daiei after the company racked up debt through years of diversification under charismatic founder Isao Nakauchi.

But Daiei may postpone sale of its Tokyo's Ginza building, originally planned for this fiscal year, because sales at private-label shops it opened in the building earlier this month have surged to "more than five times what we had expected," Takagi said.

"About 50 companies" have shown interest in purchasing the Ginza building, which Daiei bought in 1996 and leased to a Warner Brothers Studio Store until September.

Some analysts, though, don't think much of Takagi's newfound attachment to some Daiei assets. "Daiei's asset sale plans are questionable in terms of the company's race against time," said Takuya Mishima, chief credit analyst at Tokyo-Mitsubishi Securities Co.