• Compiled From Kyodo, Bloomberg

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Willcom Inc., Japan’s largest provider of personal handy-phone system services, is considering filing for bankruptcy protection as it seeks to turn its business around with financial help from a government-backed body and Softbank Corp., sources said Wednesday.

The company plans to seek protection under the Corporate Rehabilitation Law as it makes prior arrangements to tap into the funds of Enterprise Turnaround Initiative Corp. of Japan, financed by government and private financial institutions, and Softbank.

The prepackaged restructuring scheme, also used for debt-ridden Japan Airlines Corp., is aimed at pushing forward bold restructuring measures while ensuring transparency during the process.

Willcom, a majority of which is owned by U.S. private equity firm Carlyle Group, began out-of-court alternative dispute resolution proceedings. But it has faced difficulties compiling a reconstruction plan with financial institutions, the sources said.

Under the plan being crafted, the sources said Willcom and the turnaround body plan to have banks and other creditors waive more than ¥100 billion. It will also ask the company’s shareholders — Carlyle, Kyocera Corp. and KDDI Corp. — to retire 100 percent of their equities to clarify their responsibility.

The company, saddled with heavy debts linked to infrastructure investments, needs fresh cash as it operates a next-generation high-speed data transfer PHS service called Willcom Core XGP, which began last year.

The firm, formerly named DDI Pocket Inc., was established in 1994 as an affiliate of KDDI and was renamed Willcom the following year after its shares were sold to Carlyle and Kyocera. Kyocera now owns a 30 percent stake while KDDI holds the remaining 10 percent stake.

Kazuo Inamori, Kyocera’s honorary chairman and founder, serves as director and senior adviser to Willcom. Inamori has also been tapped as JAL’s chairman to oversee the airline’s turnaround efforts.

“We understand Carlyle’s Willcom is considering other ways to turn around even after it sought” an alternative dispute resolution plan, said Kyocera spokesman Haruhiko Kitagawa. Carlyle owns 60 percent of closely held Willcom.

Yuzo Tomonaga, an official at Ogilvy Public Relations Worldwide, which represents Carlyle, declined to say whether Willcom is seeking a turnaround via bankruptcy proceedings. KDDI isn’t in a position to comment, spokesman Karl Iwamatsu said.

Willcom had total liabilities of ¥173.3 billion, or six times its shareholders’ equity, according to the company’s latest financial filing.

Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. are Willcom’s biggest creditors, each owed ¥17.6 billion as of March 31, 2009, according to the carrier’s latest financial filing disclosed on its Web site.

Takashi Takeuchi, a spokesman for Mitsubishi UFJ, declined comment on individual transactions, as did Mizuho spokeswoman Masako Shiono.

Willcom offers services to about 4.4 million subscribers using personal handy-phone, or PHS, technology, which is slower than the 3G connection offered by Softbank and KDDI.

Subscribers to Willcom’s service have declined 6 percent from the peak in July 2007, its Web site says.

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