Corporate restructuring ofjapan Legal regulation and turnaround experiences. President TMA-J Yoshinobu Konomi 許斐義信

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1 Corporate restructuring ofjapan Legal regulation and turnaround experiences President TMA-J Yoshinobu Konomi 許斐義信

2 Many issues, I have to present <Macro> Japan: the economy dead locked years The national bond & the sovereign risk of Japan Globalization & the Japanese actions Global competitiveness of the Japanese economy The strategies toward the future <Micro> Turnarounds as some typical examples TEPCO : turnaround & strategies on energy /12/15 2

3 TEPCO: Damaged Fukushima plants Sincere gratitude on Taiwanese & American supports My perception, before /Technology could resolve barriers /Global Dominance on nuclear power /Energy policy global ; strategic intent After the disaster /Lack of responsibility of the leader? /Democracy, role of the journalism /Future threats,,, /High energy costs & many alternatives /Accountability /R&D /12/15 3

4 Earthquake & Nuclear Generator How to define the issues? Earthquake Fukushima Damaged Dead & Unknown : 30 k Meltdown Leak: Radioactive Recover Plan Food safety Obligation Global SCM Energy Supply TEPCO bankruptcy Value & competitive advantages?town Infra. Philosophy of the Mgrs? Risk Management? Models? FEMA? IRSN? RAND? /12/15 4

5 MACRO View: Japan perception, in advance /12/15 5

6 Corporate Bankruptcy effects: influenced by macro environment Annual trend: corporate bankruptcy number trillion High Yen, SME damaged Over supply of money Bubble economy BIS Insurance, department store Amount of debt 2010;: JAL 2011 No. of SME bankruptcy decreased to 13,321 Data: Japan, by Tokyo Shoko research Ltd. /12/15 6

7 Global Monetary Circulation affected by global policies 1985 DUT $ Value up BRICs: growth, risk Lehman, bankrupted 円高 Disaster US$ to EU, Japan innovation EU, Japan had been facing bubble US$ returned IT revolution US bubble & subprime EURO Crisis BRICS growth? FDI Credit Mfrg. Industry collapse global SCM Financial SC management PPM IT+Finance Business reformation? /12/15 7

8 B US$ GDP trend: Japan stagnation BIS rule Japan stagnation from IMF statistics Sept., 2011, US$ /12/15 8

9 Structure on Analyzing TAIWAN: appropriate strategies, Policy, Firms (Biz. Structure, Global, Network) JAPAN: adoptive policy and strategies 1 indirect financing 2 perception on globalization 3 industrial structure /12/15 9

10 Hypothesis: Macro-Micro Linkage Domestic oriented decide antitrust law Situation: Competitive Macro: economy, policy CF & balance Investment corporation law, accounting Relation: Share holder Management revolution, based on global Market. Micro: corporate mgt. International harmonization Maintain: global Biz. condition Ref.: The hypothesis proposed by Y. Konomi /12/15 10

11 Decrease debt dependency: big enterprises & Keep debt dependency: SME s Manufacturing industry Non-manufacturing Industry /12/15 Big Firm: Equity ratio Big Firm: Debt ratio SME: Equity ratio SME: Debt ratio Data: Ministry of Finance, Policy Research Institute 11

12 Big enterprises reduced debt Inspection manual lack of money liquidity Major interest: cash flow mgt. First typical example: NISSAN NOTORS : IBJ could not increase credit sell off: subsidiary, plants, office building, reduced platforms capital: negotiation failure: Ford, Daimler new share holder: Renault, CEO Carlos Ghosn on 1999 What he did: reduce working capital for minimize debt = change vertical integration Cash Flow Management = shrunk investment attitude /12/15 12

13 Financial Support Programs for SME s Loan safety-net :about 10 trillion Loan: National federation on credit guarantee program:emergency guarantee system: about 15 trillion Loan: The Act on temporary measures to facilitate financing to SME s:about 80 trillion Assistance centers for support bankruptcy of SME s:2001 & 2012 Revised: Inspection manual for deposit-taking institutions(sme s) 2007, 2010 (rating of debtors have been re-positioned) Revised: The law on special measures for industrial revitalization: Funds establishing from 2012 by the regional banks & government funds only prolong & sustain, gradually going to liquidate /12/15 13

14 Japan attempt to reinvigorate How to promote the comprehensive policy! 1 Bankruptcy Law: revised 2 Competitive Policy: Fair Trade Commission 3 Finance: Public Investment & for SMEs 4 Corporate Governance: Company Law 5 Modifications: Financial Systems /12/15 14

15 1 Bankruptcy Acts: types of related law, partially amended Civil Rehabilitation Law: DIP & pre-packaged, 2000 three fifths creditor obtained, investigate may be omitted, similar with chapter 11 of US : 6% Corporate Rehabilitation Law: DIP-limited, 2003 mortgage could be omitted 抵当権執行禁止 : less 1% Legal Liquidation: 2005, execution prohibit 執行禁止 :90% Special court Liquidation: subsidiary escape tax : 3% Voluntary Liquidation (discontinue) : n.a. /12/15 15

16 year. m Big Claims in Bankruptcy Name of the company region business amount of debt type Kyoei Insurance Tokyo insurance 4,530 billion yen special rehabilitation Lehman Brothers Security Tokyo security 3,431 civil rehabilitation Chiyoda Insurance Tokyo insurance 2,937 Special rehabilitation Japan Lease Tokyo lease 2,180 corporate rehabilitation Mycal Osaka super market 1,600 civil rehabilitation JAL Holdings Tokyo airline 1,528 corporate rehabilitation Crown Lease Tokyo lease 1,187 liquidation Nichiei Finance Kanagawa mortgage loan 1,000 Voluntary liquidation Tokyo Life Insurance Tokyo insurance 980 Special rehabilitation Life Tokyo credit 966 corporate rehabilitation Sueno Enterprises Osaka real estate 716 liquidation Sogo Osaka Department store 689 civil rehabilitation Nippon Promotion Bank Tokyo bank 681 civil rehabilitation JAL Tokyo holding 672 corporate rehabilitation Toh-shoku Tokyo trading 640 corporate rehabilitation Nihon Total Finance Tokyo finance 618 liquidation Azabu Buildings Tokyo real estate 565 corporate rehabilitation Nihon Building Projects Tokyo real estate 560 civil rehabilitation Takugin Mortgage Security Hokkaido mortgage security 539 civil rehabilitation Muramoto Construction Osaka construction 530 corporate rehabilitation note: Data: Japan, by Tokyo Shoko research Ltd. /12/15 16

17 2 Competitive Policy: Traditionally Excessive competition hesitate to invest: financial risk loose economy of scale, dispersion of R&D activities, objective: risk hedge on global investment Ref.: EU competitive policy: recommend on Horizontal Merger European economy, 2001 No.5 Japan Fair Trade Commission: global HHI, etc. Partial amendment 2011: Regulation rules on assessment & review of Biz combination first example: Nippon Steel & Sumitomo Metal Antitrust Law Reorganization Systems: /12/15 17

18 Examples of Biz. Combinations survive: JFE, konica-minolta, Banks, Retailers avoidance from M&A: Meiji, HOYA, KAO-Kanebo prolong; semiconductors, pharmaceuticals, etc. Panasonic-Sanyo(battery), Toshiba Mitsubishi Electric Industrial Systems Mitsubishi Hitachi Steel Machinery Hitachi-Mitsubishi Water Power Generator Mitsubishi-Hitachi Thermal Power Generator Fujitsu-Toshiba: exchange Memory & Mobile Phone IHI-Universal: Shipbuilding, etc. not active but passive merger /12/15 18

19 3 Public Financial Supports The Resolution and Collection Corporation(RCC): 1996, ; collection of loan obligation ref.: Capital: Deposit Insurance Corp. of Japan Industrial Revitalization Corporation of Japan: : turnaround fund for Daiei, etc. ref.: The Law of special measures for industrial revitalization Innovation Network Corporation of Japan: 2009-: promotion open innovation: RENESAS, JAPAN DISPLAY, etc. Ref.: Capital: DBJ, The Shoko Chukin Bank, private 29 The Act on Temporary Measures to Facilitate Financing to SMEs: 2009-march Nuclear Damage Liability Facilitation Fund; 2011 /12/15 19

20 4 The Company Law:reinforce governance Amendment by Ministry of Justice, implement Flexibility in corporate governance framework 2Easy to set up new company with new forms: LLC 3More flexible corporate reorganization; triangle merger 4Easier corporate rehabilitation: capital reduction 5Stronger regulation on compliance +For speedier & flexible decision making Result: shareholders are not institutional investors shareholding restriction by banks< 5% Alternative Dispute Resolution: out of court mediation for Biz Rehabilitation: /12/15 20

21 5 Modifications of Financial System BIS Rule Yamaichi security LTCB, CBJ Public financed SOGO Dept. MICAL Risona, Ashikaga Inject public fund:more than 10t to the banks & cooperatives Policy Collapsed Asset Bubble Big non-performing loan MOF Deposit Insurance Corp. Financial Service Agency The Resolution & Collection Corp. Financial Reconstruction Law M&A rules METI Financial Inspection Manuals Industrial Revitalization Corporation of Japan Act on temporary measures to facilitate financing to SME s Innovation Network Corporation of Japan Major Interests Financial System risks Financial System Reformation Future Plan on Japanese Financial Systems /12/15 21

22 Should Government do on crisis? Emergency measures of the government 1Restrain on disorder as emergency measure 2Invest public capital under systemic risk 3Avoid recurrence: risk management capacity 4Relation with real economy: negative spiral Policy against credit crisis: 4-5 stake holders 1 corporation (private) next page 2 financial institution next page 3 government office (lender side): function 4 government office (debtor side) : rehabilitation 5 central bank: under decline, credibility of capital market /12/15 22

23 Reduced investment, Corporate Finance Asset Inflation Non-performing Loan Ref.: 内部調達 = 内部留保 + 減価償却外部調達 = 増資 + 社債 + 借入金 Data: Bank of Japan, made by Daiwa Security Research,Inc. /12/15 23

24 Loan to National Bond Balance Sheet of the Banks (yr. on yr.) Loan Money supply Data: statistics by Bank of Japan Money Supply = M2 + CD National Bond (right) /12/15 24

25 Toward the future /12/15 25

26 Politics & Convictions Abenomics : Monetary & Financial Policies by new cabinet discuss1 B.S. depression or deflation 2 monetary relaxation & asset inflation 3 worsen GINI co-efficient & real demand 4 increase National Bond, with sovereign risk, the target assumed consumption tax increase 5 Neo-liberalism or Keynesian Banksexpanding to ASIA :Infra fund & trade finance Private Firms: M&As, FDIs & Reorganizations ex.: Westinghouse by Toshiba, 600b by debt financing /12/15 26

27 Completed the Macro Policies? Still Japan face many restrictions! Domestic oriented decide antitrust law Survive, but Compete? Macro: economy, policy CF & balance Indirect Finance corporation law, accounting Share holder Management Management revolution, based on global Markets Micro: corporate mgt. International harmonization Global Market Needs /12/15 Ref.: Hypothesis proposed by Y. Konomi 27

28 Additional data /12/15 28

29 Japan: Indirect finance Bank, etc Insurance Pension fund Financial Intermediate /12/15 Data: Bank of Japan,

30 US: Market depend Bank, etc Insurance Pension fund Financial Intermediate /12/15 Data: Bank of Japan,

31 Global Competitiveness Material based Industry /12/15 31

32 Examples of the advanced technologies Could be the competitive weapon? Power Generator: including Nuclear, Methane Hydrate Lowest Energy Consumption Engines for Auto Desalination of Seawater, etc. Systemized Sodium-Salt Battery, SCiB: lithium Materials & so-on for Airplane, Space Industry Super Computer start to expand to 1000 times TSMC will be co-developer ips cell, Heavy-Ion Radio Therapy for cancer /12/15 32

33 Gradually expanding foreign activities M US$ 250 sales of Japanese foreign subsidiaries 450, , ,000 Gradually increasing FDI, by Japan , , , ,000 Japan United States Germany Sales(T Yen) 100,000 50, Data: OECD statistics, /12/15 33

34 Examples of the Mgt. Crisis /12/15 34

35 Examples: Revitalization or Evacuation ELPIDA Memory: NEC, Hitachi: 1999 Negotiation on Alliance: TMC, Power chip Technologies (Taiwan) The Law of special measures for industrial revitalization: 1 st applied ( 300million Loan) 2009 by Development Bank of Japan Bankrupted(Corporate Rehabilitation Law) 2012/2 the reorganization Plan MICRON: /2 RENESAS Electronics: NEC, Hitachi, MELCO:2002 joint co., 2009 NEC Innovation Network Corporation of Japan & Toyota, Nissan, Denso, etc.: Capital Increase, personnel cut: not insolvency Sharp: 鴻海精密工業, Qualcomm, SAMSUNG? Invest not insolvency TEPCO: Nuclear Damage Liability Facilitation Fund: Major share holder, Loans guaranteed by The government : 3.2t delicate but not insolvency /12/15 35

36 Example of District Reformation Marugame1 st. Zone Co., Ltd.: West Building Owner East Zone: Owners: Buildings, Owners: Real Estate TOKYU Community Marugame A-zone Dev. ASSO. Trust Bank Marugame Town Development Ltd. Tenant: Department Book Store, etc. MarugameCommunity LLP Loan Loan: nonrecourse Regional Bank Trust Beneficiary Right Preferred Stock Subordinate Stock Investors Urban Construction Fund Regional Investor: Marugame Town Dev. Ltd. Marugame Town Development. Ltd. /12/15 MarugameCommunity Investment Intermediate Corp. 2005, Law on LLP & LLC were established. Note: Marugame, the city in Shikoku Island 36

37 The Great East Japan Earthquake the way to regenerate: fishery case FUND & Budget support Damaged Market, factory Damaged Fishery related Assts (Dec., 2011, Fishery Agency) number damage(b ) fishing vessels 28, fishing markets common facilities others 135 total 1264 Regional Cooperative Cooperatives: a,b,c, Revenue Basic expense Personnel Equity Vessels, Fishery Vessels, out of water /12/15 Individual & private co. could not regenerate, because of Double loan burden. The new biz. have been started as above 37

38 President: Turnaround Management Association in Japan Chair Director: Association of Certified Turnaround Professionals Chair Director: Japan Center for Technology Management Former Professor: Graduate School of Business Administration, KEIO Univ. YOSHINOBU KONOMI NOTE: TMA ASIAN CONFERENCE WILL BE HELD IN JAPAN ON SPRING OF 2014 /12/15 38