Aiful Corp, Japan’s third-largest consumer lender by assets, said it won approval from creditors for a debt restructuring plan that will enable it to avoid bankruptcy.
In Tokyo yesterday, Aiful met with 65 creditors, who agreed to allow the company to delay payments on ¥280 billion (US$3.1 billion) in loans, the Kyoto-based company said in a statement filed to the Tokyo Stock Exchange. Aiful also announced plans to cut about 2,100 jobs to lower costs.
Aiful’s bonds and shares rose yesterday on optimism that an agreement with creditors will allow the company to avoid bankruptcy. The lender must still cope with an industry contraction and claims for interest refunds that have led to ¥1.98 trillion in combined losses at Aiful and its three largest rivals over the past three fiscal years.
“The consumer loan industry is shrinking under interest and loan regulations and the business is going to fade out,” said Hiromichi Tsuyukubo, a hedge-fund manager at Myojo Asset Management Japan Co in Tokyo, who oversees about US$70 million. “The industry will probably be bought out by banks, and that is the only way to survive.”
The yield on Aiful’s US$500 million in 6 percent bonds due December 2011 plunged by 8.5 percentage points to 42.6 percent, the lowest since July 13, according to Royal Bank of Scotland Group Plc prices on Bloomberg.
Aiful shares climbed 8.8 percent to ¥136 at the 3pm close in Tokyo. Rivals Takefuji Corp and Promise Co also gained. The Nikkei 225 Stock Average rose 1.5 percent.
“It’s a Christmas gift to Aiful and the Japanese stock market,” said Makoto Haga, chief strategist at Tokyo-based securities firm Monex Group Inc. “The unanimous vote for the approval shows they have confidence in Japan’s economy. If they had been pessimistic, they could have forced Aiful into bankruptcy.”
Aiful said yesterday it would resume repaying the debt from Sept. 30 next year and will have repaid ¥76 billion by June 10, 2014.
The company said 2,095 employees will be retiring by Feb. 28, helping it reduce annual staff costs by ¥13 billion. Aiful has taken a one-time charge of ¥5.8 billion for the cuts.
In January 2006, the Japanese Supreme Court invalidated contracts that allowed companies to charge as much as 29 percent on loans, triggering claims for refunds that forced non-bank lenders such as Aiful to book losses.
CEO Yoshitaka Fukuda had faced possible failure after Goldman Sachs Group Inc earlier demanded that its ¥3.7 billion in loans be repaid. Under Japan’s alternative dispute resolution (ADR) process, all parties involved must approve any debt restructuring plans.
“It’s positive to see that creditors approved the ADR plan as Aiful managed to avoid the worst part of the scenario — bankruptcy,” said Takehiro Tsuda, a director at Citigroup Global Markets Japan Inc.
Aiful this month offered to repay loans held by Goldman Sachs at a discount to win the US lender’s support for its debt restructuring proposal, two people familiar with the matter said on Dec. 11.
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