Daiei seen asking banks to forgive $1.1B


Daiei would use the debt waiver to cover the cost of closing unprofitable stores and shedding 5,000 jobs

TOKYO, Japan -- Debt-burdened retailer Daiei Inc. is expected to ask for 150 billion yen ($1.13 billion) in debts to be waived by its banks, the Asahi Shimbun reported Tuesday.

Last week, Daiei arranged a 420 billion yen ($3.2 billion) bailout from its three banks - UFJ Holdings, Sumitomo Mitsui Banking Corp. and Fuji Bank.

But the company did not stipulate how much money it is asking its banks to write off. So far, Daiei has stipulated that it will ask its banks to retire 120 billion yen of preferred shares and swap 300 billion yen in debt for equity.

Half that 300 billion yen will be a straight debt writeoff, Asahi reports, a larger writeoff than expected.

Daiei runs Japan's largest supermarket chain. But its sprawling interests span 160 subsidiaries and include a controlling stake in the Lawson convenience-store chain, Japan's No. 2 after 7-Eleven.

A total of $13.2 billion in debt

It has racked up interest-bearing debt that's estimated at a total of 1.75 trillion yen ($13.2 billion), something it is trying to reduce to 1 trillion yen by 2005.

The company is also closing down 50 unprofitable stores, trying to halve its number of subsidiaries and cutting 5,000 jobs.

Those closings are expected to generate 300 billion yen in extraordinary charges, and Daiei says it needs the debt waiver to cover those costs.

Daiei stock has soared on the prospect of a bailout. But it plummeted Monday after the company said it would halve its capital as part of its restructing, a move that surprised investors.

Daiei was up 24 percent at 143 yen after morning trade on Tuesday. It fell its 50 yen limit, or 30 percent, on Monday.

But the Daiei case has worried many Japan watchers. Critics say that Japanese banks have persistently trickled loans to unprofitable companies, leading to rising bad-debt problems and keeping inefficient companies in business.

Against that background, Japan's economy will continue to struggle after more than a decade of doldrums, they say.

Banks up despite downgrade

Moody's Investors Services Inc. downgraded the credit rating of 10 of Japan's biggest banks on Monday - the member banks of Japan's Big Four groups and Chuo Mitsui Trust & Banking Co.

It blamed a banking system that it says is in "grossly inadequate shape."

Still, big-bank stocks were up on Tuesday. They sold off ahead of the Daiei deal.

Daiei's biggest creditor, UFJ Holdings, was up 3.89 percent to 294,000 yen at the morning break. Another of its banks, and Japan's No. 2 group, Sumitomo Mitsui was up 2.81 percent at 549 yen.

Mizuho Holdings, the biggest bank in the world, rallied 3.52 percent to 294,000 yen. Daiei creditor Fuji is part of the group.

The only one of Japan's Big Four without significant exposure to Daiei is No. 3 Mitsubishi Financial Group, whose stock was up 0.84 percent at 837,000 yen.