Daiei, lenders discuss ways to reduce debt

By Ryoko Imaizumi and Miki Anzai
Bloomberg News

KOBE, Japan — Daiei Inc.'s biggest creditors are considering loan waivers and other steps to keep Japan's No. 2 retailer in business, dimming investor hopes that the nation's banks would cut off their weakest borrowers.

The retailer and its four top lenders are discussing ways to help Daiei pare its $17.2 billion group debt, including waivers and debt-for-equity swaps, said Naoki Hirokawa, a spokesman for UFJ Holdings Inc., which owns two of the banks.

It looked like banks were getting tougher on Japan's ailing retailers when supermarket operator Mycal Corp. filed for court protection from creditors in September, after its lenders refused to provide new financing. UFJ and other bank stocks fell yesterday, after UFJ said lenders are discussing a Daiei bailout.

"Japanese banks just can't seem to say no to their financially weak borrowers, but that's the attitude that investors want them to change," said Shigeharu Shiraishi, who helps manage $22 billion in investments at SG Yamaichi Asset Management Co.

The Daiei debt talks also may signal that Japan's biggest employers are exempt from Prime Minister Junichiro Koizumi's push to free up fresh financing to stoke a contracting economy by disposing of bad debt.

"Daiei is still too big to fail," said Kazuhiko Ogata, a senior economist at HSBC Securities (Japan) Ltd. "The Koizumi administration might be afraid of more job losses and chain-reaction bankruptcies if it lets Daiei fail."

Sanwa Bank Ltd. and Tokai Bank Ltd., which are UFJ units, and Fuji Bank Ltd., a unit of Mizuho Holdings inc., and Sumitomo Mitsui Banking Corp. may convert some of their Daiei loans to equity and forgive some of the retailer's debt, the Mainichi report said.

The banks haven't decided their next step in efforts to help Daiei's recovery, UFJ's Hirokawa said. "It would be unnatural to rule out a debt waiver," he said.

The Kobe-based supermarket operator, which has several stores in Hawai'i, believes it can recover without a debt waiver, said Daiei spokesman Mitsuru Sano. "We are not considering a debt waiver at this moment, and we haven't heard from the banks regarding this," he said.

Daiei will announce a three-year restructuring plan next month.