Takashi Imai, chairman of the Japan Federation of Economic Organizations (Keidanren), on Monday turned cautious on a debt-equity swap scheme proposed to save manufacturers from folding under mountains of debt.
Speaking at a press conference in Tokyo, Imai said the plan was unacceptable as a quick fix for saving ailing companies. “We rather want to focus on commercial code revisions and tax reforms to help healthy companies to dispose of excess capacity or restructure their business,” he said.
Officials at the nation’s most powerful economic organization had been mulling debt-equity swaps in which creditor banks would give up claims on trouble loans for newly issued shares in indebted firms.
Ostensibly, the banks would be dumping bad loans and boosting equity at the same time. But an inherent risk would be involved — the future value of the problematic firm’s shares is not guaranteed.
At any rate, major banks have been reluctant to the proposal, and that has apparently pressured Keidanren to back off of its own idea.
Imai said debt-equity swaps could be useful in instances in which companies have drafted reconstruction plans realistic enough to offer creditor banks reasonable assurances that their new shares would increase in value. “But we don’t think at all they would be (quick) remedies for a declining company,” Imai said.