Struggling apartment rental firm Leopalace21 Corp. saw its debts exceed assets by about ¥10 billion at the end of June, it was learned Saturday.

The negative net worth is due to falling occupancy rates for its apartments, reflecting a scandal over shoddy construction that came to light in 2018, sources familiar with the matter said.

The company is expected to unveil the excess debt when it releases its April-June earnings on Wednesday, the sources said.

Leopalace21 is believed to have enough funds to keep operating for a while. As of the end of March, it had about ¥60 billion in cash and deposits.

But the company could find it difficult to take on fresh bank loans if it fails to resolve the negative net worth soon, the sources said.

Although Leopalace21 is taking restructuring measures, such as seeking the voluntary retirement of about 1,000 employees, a swift recovery appears difficult, making it necessary for the firm to find a sponsor to support its business reconstruction as soon as possible.

Leopalace21 incurred a group net loss of ¥80.2 billion in fiscal 2019, which ended in March this year, staying in the red for the second straight year. The company expects to remain in the red in the current year.

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