Ailing construction company Kumagai Gumi Co. plans to spin off its money-losing real estate business and carry out a massive restructuring in the hope of surviving as a slimmer company half its present size, industry sources said Friday.
Under the redesigned restructuring plan, Kumagai Gumi will steer clear of the real estate business, which has weighed heavily on the company’s finances, and focus on still-profitable construction projects and civil engineering, the company’s traditional strengths, the sources said.
But Kumagai Gumi issued a statement to deny similar press reports earlier in the day, saying, “The report is not true.”
According to the sources, Sumitomo Mitsui Banking Corp., Kumagai Gumi’s principal lender, and other creditors are considering putting up 250 billion yen in additional financing to help the company liquidate its bad assets and stop the financial hemorrhage.
That would bring to 700 billion yen the total amount of financial help to the construction company, including 450 billion yen provided in 2000.
Kumagai Gumi President Kazutoshi Torikai is expected to step down to take responsibility for the company’s financial mess, the sources said.
In addition to seeking help from its major lenders, Kumagai Gumi plans to seek government help through the planned industrial revitalization organization, they said.
The company is also considering seeking support from Kajima Corp., a bigger construction company, and other companies, they said.
According to the sources, Kumagai Gumi hopes the accelerated, three-year restructuring plan will restore investors’ confidence, which has withered in the wake of the company’s initial 12-year reconstruction program.
By liquidating the real estate holdings, the annual turnover of a reconstituted Kumagai Gumi is expected to shrink to around 300 billion yen, less than half the present amount.
The company hopes to reduce its consolidated interest-bearing debts from 570 billion yen as of September to some 200 billion yen by March 31, 2005, the target date for accomplishing the restructuring program, the sources said.
The reconstruction plan would involve slashing the company’s workforce by 40 percent, from 4,500 at the end of September to under 3,000, they said.
Established in 1898 as a private subcontractor based in Fukui Prefecture, Kumagai Gumi grew to become a major construction and civil engineering company with expertise in road, dam and tunnel projects.
But the company overextended its reach during the bubble economy years in the late 1980s, pouring money into investment projects that soured after the bubble burst.
At one point, the company had more than 1 trillion yen in debts.
Kumagai Gumi, capitalized at 33.4 billion yen, ranks sixth in Japan’s construction industry and had a consolidated turnover of 737.3 billion yen in the business year that ended last March 31.
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