Standard & Poor’s on Monday criticized the Deposit Insurance Corp. decision last week to help bail out ailing department store chain Sogo Co., calling the move “potentially hazardous” to the nation’s efforts toward financial reform.
The semigovernmental DIC accepted a request by Shinsei Bank, whose predecessor Long-Term Credit Bank of Japan was Sogo’s second-largest creditor, to purchase 200 billion yen worth of its loans to the department store chain.
Of this amount, the DIC will forgive nearly half, or 97 billion yen, to support Sogo’s restructuring efforts.
S&P said in a news release that the debt forgiveness plan would drastically decrease the pressure on the emporium chain to overhaul its operations.
With a substantial part of its debt burden set to be shouldered by taxpayers and bank shareholders, “there is a real danger that Sogo will lose motivation to undertake the arduous restructuring that it needs,” S&P warned.
“More troubling, however, is the possibility that creditors may perceive the deal as an indication that credit risk considerations are not central to lending and pricing decisions, on the assumption that risks will ultimately be borne by public entities like the DIC.”
S&P said the DIC move may set a precedent that the public safety net would be expanded to cover not only the banking sector — as the government has pledged — but also the nonfinancial corporate sector.