Aoki goes under with 522 billion yen in liabilities

FSA pressure may have sent firm over edge

The construction industry was dealt another blow on Thursday when general contractor Aoki Corp. effectively went bankrupt, filing for court protection from creditors under a civil rehabilitation law.

Its consolidated liabilities total 522 billion yen.

Aoki’s collapse is the biggest corporate failure in Japan since Sept. 14, when major retailer Mycal Corp. sought protection from creditors.

The Osaka-based firm listed parent-only debts of 372.1 billion yen on its application filed with the Tokyo District Court.

Aoki said it opted for fast-track corporate rehabilitation because the protracted economic slump has begun to weigh heavily on its profitability.

The Tokyo District Court accepted the application under the Civil Corporate Revival Law, which allows company management to stay on the board to map out a court-mandated restructuring plan.

The company will hold separate meetings Sunday for its creditors in Tokyo and Osaka.

The bankruptcy filing comes as financial institutions are under increasingly strong public pressure to dispose of bad loans, particularly those held by construction companies.

The pressure had fueled concerns over Aoki Corp. Its stock price has plummeted, and orders in October and November were almost half what they were 12 months earlier, according to vice president Teruo Nakano, who spoke during a hastily arranged press conference in Tokyo.

“We didn’t expect changes (in the market environment) would come so fast,” said Nakano, stressing business operations had been relatively good until the end of September.

Aoki Corp., which aggressively invested in non-construction businesses during the heady days of the late 1980s’ bubble economy, faced an earlier financial crisis in 1999.

At that time, it received a 204.9 billion yen debt waiver from a group of 29 creditors, including Asahi Bank and the Industrial Bank of Japan. It was to repay remaining debts over 20 years.

Both Asahi Bank and the Industrial Bank of Japan, a core bank of the Mizuho Financial Group, apparently reclassified Aoki as a debtor at risk of failure in view of an imminent special inspection by the Financial Services Agency.

Industry officials said the FSA is demanding banks reclassify several large companies as “firms at risk of failure” or those for which banks are required to raise loan-loss provisions.

Aoki is the first major construction firm and second listed company to go under in the direct aftermath of the FSA’s special inspections. The first listed firm was Niigata Engineering Co., a midsize heavy-duty machinery maker that collapsed in late November.

Aoki had posted operating profits of 5.1 billion yen, up 16 percent from the previous year, on group sales of 110.1 billion yen, up 7 percent, for the April-September interim period for fiscal 2001 ending March.

During the news conference, the management team, led by president Yoichiro Yano said that they would keep their positions, blaming market pressure and speculation for forcing the company to file for court protection.

They did admit, however, that heavy debt burdens and a shrinking market for public works projects have also cornered the company.

Public works once accounted for 60 percent of the firm’s total sales, but the ratio has dropped to around 40 percent.

The number of public works projects is expected to shrink further as heavy debt burdens force national and local governments to scale back their budgets.

In addition, with the FSA taking a firmer stance on banks and problem loans, several more ailing construction companies are expected to face a worsening business environment.

The forerunner of Aoki Corp. was established in 1947 in Osaka. The group has 6,500 employees, 4,560 of whom are in the firm’s hotel business unit.

Reform bites Aoki

Prime Minister Junichiro Koizumi noted the de facto bankruptcy of Aoki Corp. represented successful efforts being made by his administration to pursue the nation’s economic reform.

“It shows that structural reform and disposal of bad loans are proceeding smoothly,” Koizumi told reporters at the Prime Minister’s Official Residence. “We must carefully watch the situation to prevent any financial crisis or confusion happening because of this, though.”

Added Chief Cabinet Secretary Yasuo Fukuda: “Such a bankruptcy is definitely not something we hope for, but not something that could be avoided, either.”