Nonfinancial firms may get bailouts

As entire industries contract, Japan's own TARP takes form

Kyodo News

The government is considering funneling public funds into nonfinancial firms being battered by the global economic slowdown to provide some sort of safety net, sources familiar with the matter said Saturday.

Under the program, the government-backed Development Bank of Japan will buy preferred stock issued by companies whose earnings are deteriorating, using several hundred billions of yen in government funds to be secured in fiscal 2009, the sources said.

The emergency measure, aimed at dealing with the global financial crisis, would last through March 2010, they said.

Japan has allocated about¥1 trillion to provide low-interest loans to struggling companies as part of the state budget for fiscal 2009 starting in April.

The government intends to tap the resources set aside for that program to inject capital under the new capital enhancement program, they said.

The government will recognize firms whose rehabilitation programs are endorsed under the industrial revitalization special measures law as eligible for aid under the program.

Eligible companies would be those of a sizable scale whose demise would destabilize regional economies by disrupting local employment, they said.

The government will carefully choose which companies to fund to make sure those in industries that were already in a structural recession before the global financial crisis erupted don’t get money to prolong their apparently doomed existence.

It plans to submit related legislation to the Diet.

Under the injection program, the government will arrange another government-backed lending institution, Japan Finance Corp., to cover the losses of firms that get injections from the DBJ, if their business conditions deteriorate to the point they go bankrupt and make it impossible for them to redeem the preferred shares sold.

Even under the existing investment program run by the DBJ, the bank has purchased capital stock from companies.

But the new capital injection program is designed to make it easier for the bank to invest by providing government guarantees to such investments via the Japan Finance Corp.

Various countries have funneled public funds into large cash-strapped corporations by purchasing stocks issued by the companies.

The U.S. federal government has been tapping into the $700 billion Troubled Assets Relief Program to stave off the collapse of General Motors Corp. and Chrysler LLC.