The government is considering setting debt-ratio targets that companies in danger of folding will be required to meet before getting government help securing further financing, Economy, Trade and Industry Minister Takeo Hiranuma said Friday.
The new measures, being considered as banks accelerate the cleanup of their bad loans, are likely to include a target of reducing debts to 10 times a company’s annual cash flow.
“We are considering the details, including these things,” Hiranuma confirmed when asked about a news report on setting numerical targets. “We are basically leaning in that direction.”
A Japanese business daily reported Friday that the government’s new guidelines for corporate revival will require companies to cut the ratio of outstanding debt to annual cash flow to 10-to-1 by the end of their restructuring programs.
Big companies will be required to attain that ratio by the end of three- to five-year restructuring plans, while small and midsize companies will need to meet the requirement by the end of seven- to 10-year programs, the daily said.
The debt-to-cash-flow ratio stood at about 24 to one for real estate firms in fiscal 2001 and 18 to one for construction companies, wholesalers and retailers, according to the newspaper.
Separately, Hiranuma told the House of Representatives Committee on Economy, Trade and Industry that the government is considering setting up a special credit guarantee system as part of its “safety net” for small and midsize companies, similar to a guarantee system that ended in March last year.
The new scheme will be designed to allow public credit guarantee associations to guarantee the repayment of loans extended to relatively small companies by private financial institutions.
The size of the scheme will have to be as large as the previous 30 trillion yen guarantee system, Hiranuma said.
The Economy, Trade and Industry Ministry had been cautious about reviving the scheme, which came under fire for being too lax in giving guarantees.
The state’s guarantee system is expected to suffer losses this fiscal year, with many companies who received guaranteed loans going bust.
Also included as a social safety net measure in a government package announced Wednesday is a plan to create an “industrial revival institution” to help companies that may see their financing cut off in the process of banking-sector reform.
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