Orix Corp.’s purchase of 70 Kampo no Yado hotels from Japan Post Holdings Co. for the fire sale price of ¥10.9 billion has been making headlines for the past month and drawing the scorn of internal affairs minister Kunio Hatoyama.
The incident seems to be expanding day by day, with Hatoyama threatening to inspect Japan Post Holdings for failing to disclose the details of the offer.
Japan Post Holdings President Yoshifumi Nishikawa said he would freeze the deal and set up a panel this month to review it, but despite the monthlong outcry little is known about Kampo no Yado.
Here are some questions and answers on the hotel chain and the allegations flying between Hatoyama and Japan Post:
What is Kampo no Yado?
It is a chain of 70 hotels that employs about 3,000 people, 600 full time. The hotels were initially built as a perk for customers with “kampo” insurance policies, the brand offered by Japan Post before it was privatized.
Policyholders could rent rooms at the nationwide chain at a discount while others were charged higher prices. But since Japan Post, which is still 100 percent owned by the government, was reorganized in October 2007, everyone has been getting the discount rate.
Why do the hotels have to be sold?
They’re not making money. Of the 70 Kampo no Yado hotels, 59 are generating losses to the tune of ¥4 billion a year.
Not surprisingly, the cheap rates are what have made the hotels popular. In fact, most are fully booked on weekends, said Japan Post Holdings spokesman Toshihiko Mieda, who admitted the chain is suffering from a basic business problem.
“The rate is too low” to make a profit, he said.
A night in a twin room at the Kampo no Yado hotel in Naha, Okinawa Prefecture, for example, costs ¥9,000 per person and comes with a free full-course Japanese dinner featuring local cuisine and breakfast. It also has a bathhouse and sauna.
Because the whole idea of privatization is to make the postal business healthy and profitable, the new postal entity is obligated by law to sell or close Kampo no Yado by the end of September 2012.
Japan Post announced on Dec. 26 that Orix Real Estate Corp., an affiliate of major leasing company Orix, made a successful bid of ¥10.9 billion to purchase Kampo no Yado, beating 26 other bidders. The transaction was scheduled to take place April 1 on condition the deal is approved by the internal affairs minister, which is unlikely at this point.
Why is Hatoyama opposed to the deal?
Hatoyama said he has three concerns: the timing of the sale, the rationale for selling the entire chain as a single package, and an apparent conflict of interest involving Orix President Yoshihiko Miyauchi.
“We still have 3 1/2 years (until the hotels have to be sold), but why now?” Hatoyama asked Jan. 9. “(Japan Post) should consider selling it when the economy is in better condition” so the chain can draw a higher price.
Hatoyama also said it would be better to sell the hotels separately because it would lower the individual price of each bid, making it easier for potential buyers to participate.
He also cast doubt on the bidding process by pointing out that Miyauchi got the deal of a lifetime after pushing strongly for postal privatization while he was head of the government’s deregulation panel.
A price of ¥10.9 billion for 70 hotels is too low if it cost ¥240 billion to build them in the first place, Hatoyama said.
Lawmakers from the Democratic Party of Japan learned last week that two hotels, in Kagoshima and Tottori prefectures, were sold for a token price of ¥10,000 between 2006 and 2007. The Tottori property was later sold to a medical corporation in the city for a more substantial price of ¥60 million, or 6,000 times what the government sold it for.
How is Japan Post responding to the outrage?
Nishikawa said he wanted to get rid of the unprofitable hotels as soon as possible and that selling them off piece by piece would be costly. He also said the tender was conducted in a fair and appropriate manner, although he declined to disclose any details.
As for the sale price, Japan Post claims it was fair because the chain was assessed as having a net worth of ¥9.3 billion as of October 2007.
In a news conference last week, Nishikawa said he will freeze the plan because Hatoyama, who has the final say, won’t sign off on it.
“We will gravely accept what (Hatoyama) pointed out and consider ways to sell the hotels, including other options,” Nishikawa said.