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The Cabinet approved a set of corporate restructuring bills Tuesday, paving the way for the much-touted launch of a government-backed entity tasked with rescuing ailing firms the government deems salvageable.

The two bills were then submitted to the Diet.

One would facilitate the establishment of the tentatively named Industrial Revitalization Corp., which would in turn purchase up to 10 trillion yen in nonperforming loans held by banks.

The bill does not state how the 10 trillion yen will be raised.

“We hope that the entity will help revitalize finance and industries speedily,” industry revival minister Sadakazu Tanigaki said. “We also hope that the corporation will nurture a new market for corporate revival business.”

The other bill features amendments to the existing Law on Special Measures for Industrial Revitalization. It would promote corporate restructuring via tax breaks, special loans and “expert advice” on rebuilding management.

If the bills clear the Diet by the end of March, in line with the government’s wishes, the entity would start operating in May, officials said.

It is designed to buy up loans extended to ailing companies, help them carry out restructuring plans over a three-year period and try to sell the loans back to the private sector.

The entity, to consist of bureaucrats and private-sector executives, would be dissolved in five years.

The bills are part of a government drive to expedite the disposal of bad loans that have crippled the nation’s economy for more than a decade.

The entity would purchase sour loans extended by banks to firms that are not about to collapse but have benefited from waivers. These loans would mostly involve the secondary creditor banks of troubled borrowers, rather than their main creditors.

By adopting this approach, the planned entity aims to consolidate loans currently scattered among various banks. It would then be able to take the initiative in turning companies around by playing the role of a “fair, neutral mediator” between corporate borrowers and their main creditors.

But questions as to whether the entity will actually work remain unanswered.

Officials have stressed that it will adopt a market-oriented approach and will not buy loans extended to “zombie companies” in sectors such as retail and construction.

But already there is political pressure to do just that.

Land minister Chikage Ogi on Tuesday expressed hope that the new organ could revive the struggling construction industry.

“Our major concern is the fact that disposal of nonperforming loans (through the scheme) will have the biggest impact on construction firms and general constructors,” Ogi said. “I very much hope that the organization will be utilized in a way that will help inject life back into the construction industry.”

Skeptical observers believe the body will inevitably be pressured by old-guard politicians who receive general contributions from contractors and other companies in overcrowded sectors.

The hunt for a president for the planned corporation has been under way for months. Few business leaders appear interested in the job of issuing life-or-death rulings on private-sector firms.

Another sticky question will be the price at which the entity will buy the loans, although Tanigaki has said it will buy them “at appropriate market value based on firms’ reconstruction plans.”

But already a Catch–22 is seen. Buying at deteriorated market levels would give banks little incentive to sell, while buying at inflated prices would provoke criticism that the revival body may end up as a huge warehouse for bad loans.

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