Daiei soars on rescue plan


Debt-hobbled Daiei is one of Japan's largest retailers, with sprawling operations that it is considering trimming

TOKYO, Japan -- Troubled Japanese retailer Daiei Inc. is expected to unveil a three-year business plan soon.

It would likely be accompanied by a rescue package from its creditors, estimated at around 420 billion yen ($3.18 billion).

A source close to the deal told Reuters news agency that Daiei could unveil the plan as early as Friday.

The prospect of a bailout sent shares of the embattled retailer surging 6.78 percent, to close at 126 yen on Thursday.

That was on a day the main Nikkei index fell 0.49 percent, to end at 10,128.18.

Its shares plunged to a lifetime low of 69 yen in early December after speculation that Daiei could succumb to its massive debts.

Debt-equity swap in the offing?

A source also told Reuters on Wednesday that Daiei and its banks are considering a debt-for-equity swap of 300 billion yen ($2.29 billion) to pare back mountains of debt.

The banks reportedly agreed to retire 120 billion yen ($915.4 million) in preferred shares bought last year.

However, the source said the banks were not inclined to include debt forgiveness in the restructuring package, which aims to trim Daiei's interest-bearing debt.

Daiei, which had 2.31 trillion yen in interest-bearing debt at the end of August, plans to reduce the amount to 2.24 trillion yen by the end of February.

Taking shape


A rescue package for the ailing company has helped offset losses in the stock market

The Daiei case is being closely monitored as a blueprint for future restructurings at companies with big debt burdens.

Analysts believe debt-equity swaps will prove popular, as they have elsewhere in Asia after the 1997 financial crisis. The strategy lets creditor banks and troubled borrowers work together on a solution for survival.

Taking in Daiei shares through debt-equity swaps would reduce the risk of a default, a serious risk that would see the banks struggle to get back their loans.

But taking new stock for debt would dilute the value of existing Daiei shares. It would also not be much of an investment for the banks, analysts said.

Analysts also suggested government assistance to ease the burden on banks when converting loans into equity.

But finance minister Masajuro Shiokawa said the government would prefer companies and banks to work out their own deals.

Restructuring efforts

Apart from the rescue package, local reports state Daiei is planning to undertake several restructuring measures to stay afloat.

The company reportedly plans to reduce by more than half its 160 subsidiaries and cut its 32,000 staff by 2,000 over three years.

Daiei has a majority stake in the 7,700-strong Lawson convenience store chain, Japan's second-largest after 7-Eleven.

It is also expected to withdraw from nearly all overseas operations, including those in China and Hawaii. It already gets more than 90 percent of sales in Japan.

Daiei may close more than 20 loss-making discount stores run by subsidiaries, as well as about 30 supermarkets it runs directly.

It is considering the sale of a part of its shareholding in Recruit Co. and cutting its stakes in other firms.

Sprawling Daiei is one of Japan's largest retailers. The company owns supermarkets, discount stores, department stores and specialty shops.

Its other operations include restaurants, hotels, and real estate businesses.

Selling stake

In a related development, Lawson Inc said Thursday it might sell its 10.2 percent stake in Daiei OMC, which is saddled with around a quarter of its parent's debt load.

Lawson has been trying to distance itself from the Daiei group and has been trying to link up with the Mitsubishi Corp. conglomerate.

A Lawson spokesperson said it plans to abandon its co-issued credit card business with Daiei OMC.

Instead, Lawson will establish a new firm with Mitsubishi Corp. together with credit sales department store Credit Saison.