Public-private funds in Japan, such as Japan Investment Corp. (JIC), are preparing to boost investments at a time when corporate earnings are being squeezed by the novel coronavirus epidemic.
The government plans to use the state-backed funds to strengthen the capital base of companies facing management difficulties, in hopes that the assistance will trigger the creation of new industries and revitalize regional economies mainly through industry realignment.
There are concerns, however, that if the number of so-called zombie companies increases as a result of easy public bailouts, economic growth would be undermined.
Keisuke Yokoo, president of JIC, said the fund will never rescue zombie companies, instead suggesting plans to encourage companies to implement drastic reform, such as restructuring, through investment and loans.
The government expanded its guarantee lines for JIC and Regional Economy Vitalization Corp. of Japan, or REVIC, in June.
Investment capacity expanded from ¥1.5 trillion to about ¥3 trillion for JIC and from ¥1 trillion to some ¥2.5 trillion for REVIC. The two funds have also strengthened their workforces.
This summer, JIC launched some initiatives, including an investment fund for medium-sized and large companies, in an attempt to spur digitalization to deal with the coronavirus crisis and industry reorganization.
JEVIC is said to be looking for a large-scale business rehabilitation project involving debt forgiveness. The predecessor of JEVIC led the corporate rehabilitation procedures for Japan Airlines in 2010-2011.
Amid the coronavirus crisis, tourism-related businesses, restaurant operators and airlines have been thrown into an earnings slump. The government has stepped up financial support for them, with bank lending led by the government totaling ¥40 trillion.
But the excessive debt can hamper new investments and structural reform by companies.
A corporate rehabilitation specialist predicted that an increasing number of companies will eventually be granted a debt waiver and accept investment to clear heavy debt, and be forced to undergo drastic reform.
Public-private funds are considered to be prospective sponsors for such corporate rehabilitation efforts.
At the same time, state-backed funds need to avoid causing financial burdens on the people as they use public funds.
The predecessor of REVIC secured proceeds totaling ¥300 billion when JAL returned to the stock market in 2012. But the predecessor of JIC effectively failed in its attempts to bolster semiconductor manufacturers and reorganize the liquid crystal display industry.