Japan's Zombie Warehouse

This looks like another non-starter 'jump-start' for Japan's continuing problems. The Industrial Revitalisation Corporation is to spend $84 billion buying up bad loans: this sounds fine, it's the bit about reselling them back to the market at break-even prices that should make you start to wonder. If this was half-way serious it would be buying up the debts to write them off, not to refloat non-proftable companies and send them back in to add to the bloated-capacity problem. Of course here it's more a question of how you see the problem dictating how you read the 'solutions'.

A new public body charged with turning around some of Japan's struggling borrowers plans to buy up loans belonging to as many as 400 companies over the next two years. The Industrial Revitalisation Corporation, which starts business on Thursday, has been licensed to spend up to ¥10,000bn ($84bn, €74.7bn, £52bn), amounting to almost a quarter of the official estimate of ¥43,000bn in bad loans that is swamping the banking sector.Kazuhiko Toyama, the corporation's chief operating officer, said on Tuesday that the IRC plans to break even within five years.The new body is mandated to buy problem loans belonging to salvageable companies, repackage them and sell the loans back to the market. It is capitalised at ¥50bn, but can borrow up to ¥10,000bn.

Mr Toyama, 42, who has built a reputation as a corporate doctor, said the IRC would have to overcome fear among banks and borrowers that might dissuade them from signing up. "Some people might be scared that the IRC is some kind of aggressive private-equity-style player and that we aim to push the purchasing price down and to make an arbitrage profit, but that's completely nonsense. "Our goal is to revitalise Japanese industry."

Mr Toyama said he aimed to sign up borrowers from several industrial sectors as quickly as possible to establish early success stories that would encourage others to come forward."This is not a profit-oriented company, it's a public company, so we are okay with zero profit," he said. In some cases the IRC, as well as buying loans, would provide fresh investment to build a company's competitive advantage. Turnaround meant more than simply cutting headcount, especially given Japanese lifetime employment practices, said Mr Toyama. Canon, the printer and camera manufacturer, showed that a successful hybrid could be developed between US and Japanese management practices.

Mr Toyama denied that the IRC would become a warehouse for "zombie" companies, saying it aimed to sell on investments within three years of purchase. He admitted that some turnarounds might fail, leaving the IRC - and ultimately the taxpayer - to foot the bill."There is always a risk in turnarounds. The IRC has been established to take the risk that sometimes private creditors cannot afford." Mr Toyama was a founder of Corporate Directions, one of Japan's few corporate turnaround specialists, and helped salvage a number of well-known companies including Japan Lease and Akiyama Printer. The IRC, which has a staff of about 100, will rely heavily on outsourcing to experts inside and outside Japan.
Source: Financial Times
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