DBJ may throw 10 billion yen into new Daiei bailout fund

The government-affiliated Development Bank of Japan will invest 10 billion yen in a 60 billion yen fund to support rehabilitation efforts by financially troubled supermarket operator Daiei Inc., sources close to the case said Wednesday.

The investment will set the stage for the government to get indirectly involved in Daiei’s management, the sources said, noting an official announcement will be made possibly Thursday.

It will be the bank’s biggest capital injection into a corporate rejuvenation fund since the government decided a year ago to allow the bank to invest 100 billion yen in such funds to assist the rehabilitation efforts of ailing firms.

The remaining 50 billion yen in the planned fund will come from Daiei’s three major creditor banks — UFJ Bank, Sumitomo Mitsui Banking Corp. and Mizuho Corporate Bank — that will make the investment as part of an earlier bailout, the sources said.

The 50 billion yen will come in the form of cash stocks — 10 billion yen in common shares and 40 billion yen in preferred shares — that Daiei allocated to the three banks in August in a series of debt-for-equity swaps and third-party new stock allocation deals.

The DBJ’s 10 billion yen investment will be made as a monetary contribution, the sources said.

The DBJ’s involvement in Daiei’s bailout could cause controversy as analysts may consider it another example of the government’s support for the major supermarket chain, which has become a symbol of Japan’s “zombie” corporations — loss-making companies that plunder the banking system.

The move appears to contradict the government’s stated top priority of promoting the disposal of bad loans. Financial Services Minister Heizo Takenaka recently told Newsweek magazine that no company “is too big to fail.”

On Oct. 8, Takeo Hiranuma, minister of economy, trade and industry, expressed frustration with a plunge in the price of the company’s stock, saying, “Daiei is on the road to recovery through huge efforts.”

Cabinet ministers rarely make specific comments on companies’ whose share price is plunging.

The sources said the DBJ’s investment in a fund for Daiei is partly designed to help increase management transparency at the firm.

The DBJ’s capital subscription for the fund will have basically the same meaning as the bank directly investing in the retailer, allowing the bank to keep monitoring the rehabilitation process, the sources said.

Daiei is trying to cut its group interest-bearing debt, excluding debts owed by consumer credit service subsidiary Daiei OMC Inc., to 900 billion yen by the end of February 2005 from 1.8 trillion yen at the end of August 2001.

Earlier, the DBJ decided to invest in funds to help rehabilitate Ichida Co., a Tokyo-based kimono-trading firm, and Sendai-based department store operator Dac Vivre Co., which changed its name to Sakurano Departmentstore Co. on Oct. 1.