Bailing out Japan Inc: JBIC’s operating charter to be modified

Los Angeles: The Japanese government is easing restrictions on the state-run Japan Bank for International Cooperation (JBIC) in a bid to increase access to dollar funds for Japanese companies, a Nikkei report said Sunday. Current rules allow the government-owned Japan Finance Corp. and JBIC to make syndicated loans with private-sector banks only to the tune of 60 per cent of the total loan amount.

With the Japanese manufacturing sector tottering with shrinking exports the government now plans to ease restrictions and allow the JBIC to be the sole lender. It may also double JBIC's funding for fiscal 2009 to 2.5 trillion yen from 1.25 trillion yen, the report said.

In a measure described as ''unusual and extraordinary,'' Kaoru Yosano, Japan's finance minister, said at the beginning of the month that JBIC would funnel an extra $5 billion from the country's foreign reserves into struggling Japanese firms.

Historically, JBIC's main business has been lending to infrastructure projects in emerging economies.

In February, Japan's exports shrunk by half, a pace of fall last seen only in the 1970s. Auto exports constitute 20 per cent of the total exports from Japan. 

With Japanese firms facing difficulties in raising US dollar funds the government is anxious that major deals should not collapse because of a failure by home companies to secure such loans, the report says.

The report suggests that some riders, however, would be placed on loans to be issued by JBIC under the new arrangement. These restrictions would involve allowing JBIC to issue the entire loan only if the deal had the potential to collapse if the public lender failed to step in, or, to issue a full loan only when a sound business faced a crisis because of difficulty in acquiring dollar funds, the report said. 

The move comes even as reports emerge that Japan's industrial giant, Toyota, has asked JBIC to bail out its crisis-hit US operations. It is being suggested that the loan-financing arm of Toyota may have approached the JBIC for as much as $2 billion in emergency loans.

Such a request for Government funding from Toyota may prompt a whole host of other struggling industrial companies to seek capital from the same source.

The fact that such a request for funds may have been made was confirmed indirectly by JBIC with a spokesperson saying that the bank was evaluating ''multiple'' funding requests from across corporate Japan. 

Bailing out Toyota
Toyota confirmed that its financial subsidiary, Toyota Financial Services, had indeed approached the JBIC for a loan, but said the size and other details were yet to be worked out. Toyota's approach to JBIC comes only a few weeks after the company raised a similar sum through a bond issue.

Analysts point out that Toyota's level of profitability in its US operations traditionally resulted from the fact that it sold its cars easily without being compelled, like other US auto companies, to offer financial inducements to customers.  The superior build of its vehicles allowed it to escape offering favourable financial terms to customers, which in turn allowed it to operate with a leaner cash flow requirement than its Detroit counterparts.

 Given the catastrophic downturn in the US economy Toyota has now been compelled to match offers being made by its Detroit rivals to lure disappearing customers, and now its financial subsidiary requires more capital than it ever did.

Toyota's rapid collapse of sales has proved particularly traumatic for Japan as the rapid decline in sales of the auto giant has left the country's industrial heartland in a shambles, particularly its home base around Nagoya.

The company has already informed about 450 suppliers that global production would probably fall by 20 per cent in the coming financial year beginning 1 April.

A Toyota spokesperson said the JBIC emergency loan facility ''is aimed at diversifying our financial resources as the international financial market is getting tighter.''

(Also see: Japan Inc wants another 30-trillion yen economic measures)