Kumagai Gumi Co. unveiled a restructuring plan Monday under which the debt-ridden construction firm will ask 15 creditors to forgive debts totaling 450 billion yen.

The plan, which covers fiscal 2000 through 2012, also calls for 2,000 jobs to be abolished in three years, reducing the total workforce to 4,600 by March 2003.

The midsize general contractor will reduce its capital from the current 82 billion yen to 17 billion yen after seeking approval at its shareholders’ meeting in January.

President Yoshio Matsumoto told a news conference that he will step down to assume responsibility for the failure of the firm’s management, and Vice President Kazutoshi Torikai will assume the position.

Matsumoto said four other executives will resign after the new rehabilitation program finds a firm footing, probably before the end of this year.

The proposed debt waiver request includes 234 billion yen from Sumitomo Bank, the firm’s main creditor, and 100 billion yen from Shinsei Bank, formerly the Long-Term Credit Bank of Japan.

In a statement released Monday, Sumitomo Bank President Yoshifumi Nishikawa said the bank will consider accepting Kumagai Gumi’s debt waiver request and pledged to continue to support the troubled contractor.

Kumagai Gumi officials said Shinsei Bank seemed receptive to the proposal.

Matsumoto explained that although the company wanted to rebuild itself without asking for the waiver, it had to reconsider due to new accounting rules based on market values, not book values.

“We have to dispose of nonperforming assets under the new accounting system,” he said, adding that the firm’s financial problems stem from the expansion of its businesses in the late 1980s.

As of March 2000, Kumagai Gumi held 1.057 trillion yen in consolidated debt-bearing debts, the biggest in the industry.

The restructuring plan calls for reducing that figure to 240 billion yen by the end of March 2013.

Toward that end, the company will sell its assets in Japan and abroad to raise 210 billion yen and write off 570 billion yen in nonperforming assets in fiscal 2000.

As part of its efforts to ensure the restructuring plan is a success, Kumagai Gumi will accept two officials from Kajima Corp. as board members and one official from Sumitomo Bank as a vice president, the company said.

To improve efficiency, Kumagai Gumi will place greater focus on the civil engineering field. Founded in 1898 by the Kumagai family, the general constructor is strong in large-scale civil engineering and shield-processing projects, including dams and tunnels.

It plans to increase orders in civil engineering projects by 10 percent and reduce those in architecture projects.

The company will also downsize its overseas operations, reducing nine overseas branches to three branches — Hong Kong, Taiwan and Thailand.

In a related move, Kumagai Gumi announced downward revisions in its earning projections for fiscal 2000.

Its consolidated pretax profit will decrease to 400 million yen from the previous forecast of 1.5 billion yen while its group sales will also be reduced to 795 billion yen from 807 billion yen.

The company will post 3.1 billion yen in consolidated net loss, compared with its earlier forecast of 1.5 billion yen in group net profit.

On a parent company basis, the firm forecasts that its pretax profits will decrease to 2.9 bullion yen from 5 billion yen and sales will fell to 686 billion yenfrom 690 billion yen. It will also post 157.8 billion yen in net loss, compared with an earlier forecast of 5.5 billion yen in net profit.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.