Jobless Rate Rises To 5.1% In Nov.

The Ministry of Internal Affairs announced that Japan's unemployment rate rose by a seasonally adjusted 0.1% from October to 5.2% in November. The consensus by economists was around 5.2%. The number of unemployed rose 750,000 year on year to 3.31 million, up for the 13th straight month. Of the total unemployed, those who were asked to leave by their employer expanded by 490,000, while those who left voluntarily rose by 70,000. The number of people with jobs declined by 1.31 million down to 62.6 million, the 22nd straight month of contraction.

Buyout Funds Trippling Japan M&A Spending To Y250bn For Oct-Dec

Improving credit conditions appear to have revitalized buyout funds, with merger and aquisition activities targeting Japanese companies expected to jump a little over 200% on the year to some 250 billion yen in the October-December quarter, according to Nikkei. That quarter figure is getting a big boost from US investment fund Bain Capital LLC's acquisition of Bellsystem 24 Inc. for roughly 100 billion yen. The deal was annoucned in November. But the total for 2009 will likely be slightly more than 420 billion, down 60% from a year earlier and the lowest since the 110.7 billion yen of 2002.

JPE Fund Bought Health Care Company

Japan Asia Investment Company Co.,(JAIC), a listed VC company announced that its fund acquired all shares of Healthy Service Co., a Chiba-located provider of elderly care services. The fund is managed by JAIC's affiliate, Japan Private Equity Co. Ltd. which is an investment firm specializing in small markets that EV ranges from 1~5 billion yen. The nursing services provider recorded the sales of 1.9 billion yen this year with 600 employees. The deal is a business-succession type.

Tokyo Office Vacancies Hit Record High

Vacant office space in central Tokyo totaled at a record-high of about 1.79 million square as of the end of November, according to office broker Miki Shoji Co. Office demand has continued shrinking in the Tokyo Metropolitan area, with 7.98% of central Tokyo offices vacant at the end of November. Brand new office buildings were not immune to the downtrend, with the average vacancy rate of those built during the year standing at 21.5%.

Daiwa Principal and Fund Sell Nikko Elec To Chinese Company

Daiwa Securities SMBC Principal Investment Co. and an investment fund operated by billionaire American financier Wilbur Ross plans to sell 79.1% of the outstanding shares in Japanes autoparts firm Nikko Electric Industry Co. to Chinese autoparts manufacturer Ningbo Yunsehen Co., according to Nikkei. Ningbo is listed on the Shanghai Stock Exchange and makes magnetic materials and motors for passenger vehicles. Nikko Electric supplies parts for automobiles and construction machinery to such customers as Isuzu Motor Ltd., Komatsu Ltd. and Mitsubishi Heavy Industries Ltd.

Secured Capital Japan To Buy Tokyo Skyscraper For Y140bn

Secured Capital Japan Co(SCJ)., a leading real estate fund, will buy the Pacific Century Place, a premier class 32-story building located in Marunouchi for about 140 billion yen, according to the Nikkei. The deal will go down as the biggest domestic real estate transaction since the financial crisis. The developer, Hong Kong's Pacific Century Group, sold the building to DaVinci Holding KK for about 200 billion yen in 2006. After DaVinci defaulted on re-financing this September, major creditor Shinsei Bank led an auction for the property. Mitsubishi Estate Co. was reportedly among the bidders, as were pairings of East Japan Railway Co. and Mitsui Fudosan Co. and of Kenedix Inc and the Carlyle Group. SCJ emerged the winner and reached a tentative prurchase agreement Monday.

Panasonic Takes Control Of Sanyo For $4.6 bn

Panasonic Corp. announced that it will buy a majority stake in Sanyo Electric Co. for about $4.6 billion. It hopes to secure its position as a leading provider of batteries for fuel-efficient automobiles by taking control of Sanyo's battery operations, according to Nikkei. In a statement, the Osaka-based consumer electronics giant said it will acquire 50.19% of Sanyo for Y403.78 billion after a tender offer. The offer, which had been in the pipeline for nearly a year, expired Dec. 9 and is set to be settled Dec. 16.

Aeon To Sell Talbots To US fund

Aeon Co., a leading operator of general merchandise stores announced that it will sell major US clothing retailer Talbots Inc. to an American investment fund. Aeon divests when Talbots merges with a special-purpose company under US fund BPW Acquisition Corp. in Feburary. When it takes place, Aeon will sell its entire 54% of about 29.9 million shares to the US clothier. At the same time, Talbots will repay all of the roughly 20 billion yen it has borrowed from Aeon.

GDP Revised Down Sharply to Annualized 1.3% In 3Q

The Cabinet Office reported that GDP rose by 0.3% in the July-September quarter, rather than by 1.2% as initially estimated on Nov.16. In annualized terms, growth came to 1.3%, a downgrade from the preliminary figure of 4.8%. The media estimate was for 2.8% growth. The GDP deflator staged a fall of 0.5% rather than a rise of 0.2% as figured in the preliminary report. By category, capital investment dropped 2.8% from an initial estimated 1.6% decline, housing investment fell 7.9% rather than 7.7% and public investment fell 1.6% not 1.2%. Companies are cutting investments in plants and equipment to protect earnings, fueling concern about a recovery that's already under threat from deflation and a rising yen.

Listed Firms' Stock Buybacks Shot Up 6-Fold In Nov

Share repurchases by listed companies sextupled on the month to 62.7 billion yen in November, according to data compiled by Nomura Securities Co.. The Nikkei Stock Average's slide that month, to just shy of falling below 9,000, is believed to have compelled some firms to buy back their shares to underpin prices. A total of 119 companies announced buybacks in November, 32 more than in October.

Foreigners To Get Tax Exemptions For Returns On Corporate Bonds

The government Tax Commission has decided to waive taxes on interest income earned on Japanese corporate bonds held by overseas investors, according to Nikkei. Currently, such income on corporate bonds issued in Japan is taxed at a hefty 15%, a factor contributing to a lack of interest in Japanese corporate bonds among foreign investors. The tax break will be a temporary measure lasting three years starting in fiscal 2010. The commission, however, is planning to continue to tax interest earned by overseas affiliates holding bonds issued by Japanese firms.

The Team of Toshiba and INCJ Loses Bid For Areva's Power Grid Equipment Unit

A French group was victorious n its effort to buy the power transmission and distribution equipment unit of major French nuclear firm Areva SA, thereby dashing Toshiba's hopes for making its own acquisition, according to Nikkei. The final round of the tender in early November was a three-party race among: a partnership of Toshiba and public-private investment fund Innovation Network Corp. of Japan (INCJ), an alliance of the French firms Alstom SA and Schneider Electric SA, and a group led by General Electric Co. The French alliance, which offered roughly 4.09 billion Euros, has effectively won the bid by securing the priority negotiation rights. The Toshiba team is believed to have offered the highest price, but the French government, a major shareholder of Areva, appears to have backed the local alliance.

Peugeot In Talk To Become M'bishi Motor's Top Shareholder

Mitsubishi Motors Corp. and PSA Peugeot Citroen Group are negotiating a capital tie-up that would give the French firm a 30-50% stake in the struggling Japanese automaker, according to Nikkei. The deal would help Mitsubishi bolster its financial health and accelerate its business rehabilitation efforts. In exchange, Peugeot would be able to tap Mitsubishi's expertise in electric vehicles and its business network in emerging countries. The two have been discussing co-developing environmentally friendly vehicles.

Alps, INCJ To Study Green Device

Alps Electric Co., Ltd, a major producer of comprehensive electronic components, announced that they reached a basic agreement with the Innovation Network Corporation of Japan (INCJ) to begin a joint feasibility study on the promotion of business in magnetic material and thin-film process technologies. This new business encourages an "open-innovation" style with the open involvement of industries and research institutions involved in the creation of environmentally-friendly products that serve to realize a low-carbon society through energy conservation and efficiency. INCJ was established in July as a public-private investment fund for promoting the commercialization of unexploited advanced technologies and patents.

Gokurakuyu Plans To Open Its 1st Chinese Spa in '11

Gokurakuyu Co., an operator of large-scale hot bath facilities, plans to open its first Chinese spa facility by the end of March in 2011 under a tie-up with a Hong Kong asset management company, according to Nikkei. CITIC International Assets Management Ltd., or CIAM, on Monday, acquired a 4.2% stake in Gokurakuyu from investment firm MBK Co., which had owned an 8.4% interest before the deal. The three will set up a joint venture as early as January in Hong Kong, with Gokurakuyu holding 40% and the other two combined holding 40%. The joint venture will start raising funds and searching for suitable locations in China, which has seen a dramatic increase in spa openings. CIAM is a unit of the Chinese-government-affiliated financial services giant CITIC group.

Nissan To Merge 2 Osaka Dealerships With Fund

Nissan Motor Co. will integrate two dealership affiliates in Osaka Prefecture at December's end under a new company co-established with Nippon Mirai Capital Co., an Tokyo-based investment firm, according to Nikkei. Nissan and Nippon Mirai have set up a holding company capitalized at 500 million yen. The fund is taking a 51.3% stake, while Nissan will hold 46.2%. Two Osaka-based dealerships will be placed under the holding firm through a stock swap. With new-car sales not recovering anytime soon, Nissan seeks to establish efficient marketing structures. This one is a pilot project. Nissan mentioned that if this works out well, it hopes to consider similar strategies in other regions, referring to a further consolidation of dealerships.

Mizuho Capital Partners Unloaded Stake In Japan Pure Chemical

An investment fund operated by Mizuho Capital Partners Co. completed the sale of all its Japan Pure Chemical Co. shares through Wednesday, according to Nikkei. The fund, FBF2000, obtained an 81% stake in Japan Pure Chemical in 1999 through a MBO. By way of IPO in 2002, it gradually reduced its interest in the company to 5.4% as of this March's end. FBF2000 is believed to have sold its remaining stake to a US pension asset management firm. In all, the Mizuho Capital Partners' fund is believed to have amassed around 8 billion yen from share sales off an original investment of 1.45 billion yen.

MUFG To Issue Y1tln shares

Mitsubishi UFJ Financial Group announced last week that it filed a shelf registration to raise up to 1 trillion yen's worth of capital by issuing common shares. MUFG, Japan's largest bank, plans to issue the shares within one year. Due to the recent move by global regulators to push for a stricter capital requirement for financial institutions, Japanese banks have been seeking opportunities to raise capital.

JIP To Plan To Buy Subsidiary Of Yamaha

Yamaha Corporation has announced that it has decided to begin negotiations regarding the transfer of Yamaha's holdings of shares in its wholly owned subsidiary Yamaha Livingtec Corporation (YLT) with Japan Industrial Partners, Inc.(JIP). YLT is a wholly owned subsidiary of Yamaha in the housing fixtures and equipment business, primarily engaged in the manufacturing and sale of system kitchens and system bathrooms. Under the current negotiation, JIP would invest in YLT and provide various forms of supports to expand the operation of YLT. The goal will be to reach a final agreement in spring 2010.

TPG Might Invest in JAL

TPG, a US private equity firm, is prepared to invest as much as 100 billion yen ($1.1 billion) in Japan Airlines Corp., as part of a coordinated effort with American Airlines Inc. to support the struggling carrier, according to Nikkei. Assuming that the Japanese government approves, TPG will work with American Airlines to assist in JAL's turnaround. Both AA and JAL belong to the oneworld global alliance, which involves code-sharing and cross-honoring of frequent flier miles.

Hitachi To Raise Up To Y415 bln From Share, Bond Issuance

Hitachi Ltd., the Japanese electronics conglomerate, announced that it will raise up to 415.67 billion yenm ($4.5 billion) from an issuance of new shares and convertible bonds to fund capital outlays and pay back its loans. Hitachi said it will issue 1.09 billion new shares to the public with an additional offering of 60 million new shares in case of excessive demand. The combined number of new shares accounts for as much as 34% of Hitachi's current shares outstanding.

Bain To Buy Bellsystem24

Bain Capital LLC will buy Bellsystem 24 Inc., Japanaese call center form Citigroup Inc. for 120 billion yen ($1.34 billion). The US private equity firm will receive 79 billion yen's worth of loans from Sumitomo Mitsui financial Group Inc., Mitsubishi UFJ Group Inc. and Mizuho Financial Group Inc. to help fund the transaction. The deal is the biggest private equity-related transaction this year, topping Goldman Sachs Group's $1.1 billion buyout of USJ Co., operator of Universal Studio's theme park, in March.

Japan GDP Up by 4.8% in July-Sept Quarter

Japan's 2009 Q3 (July-Sept) GDP grew an annualized real 4.8 percent for the second straight quarter, following a 2.7 percent p.a. increase in Q2.

In the July-Sept quarter, consumer spending, which makes up about 60 percent of Japanese GDP, rose a real 0.7 percent from the April-June quarter, as durable goods spending increased on tax breaks on eco-cars and a government reward program for purchases of greener consumer electronics increased. Corporate capital spending also rose 1.6 percent for the first increase in six quarters. Japanese exports increased 6.4 percent, reflecting higher demand from other Asian countries, while imports rose by 3.4 percent.

Despite the GDP growth in real terms, nominal GDP fell 0.1 percent from the last quarter reflecting price decrease.

The Bank of Japan forecasted in its twice-yearly outlook released Oct. 30 that Japan's economy will grow about 1.2 percent next fiscal year (April 2009 - March 2010) after shrinking 3.2 percent in fiscal 2009.

FamilyMart To Buy Smaller Rival am/pm

FamilyMart Co. , the nation's No.3 convenience store operator, has agreed to purchase smaller rival am/pm Japan Co. for more than 10 billion yen, according to Nikkei. FamilyMart, which has around 7,600 locations throughout Japan, sees the acquisition boosting its competitiveness to overtake the top ranked Seven-Eleven and No2 Lawson. am/pm owns roughly 1,100 stores with about 70% located in the growing Tokyo market. Earlier this year Lawson agreed to purchase am/pm but abandoned those plans due to demands by the US trademark owner, am/pm international Inc., that a majority of the stores retain the brand name.

Toshiba Bid For Areva Power Grid Unit With INCJ

Toshiba Corp. had tendered the highest bid for French nuclear giant Areva SA's power transmission and distribution equipment unit, offering slightly more than 4 billion euros, according to Nikkei. Toshiba put in the bid in a partnership with public-private investment fund Innovation Network Corp. of Japan. The Areva unit manufactures transformers, control systems, and other key equipment for power grids. Toshiba, which offers such equipment in Japan and other Asian countries, will be able to go global and roughly triple sales from this business through the deal.

Chimney To Go Private Via MBO with Carlyle

Chimney Co., a midsize chain operator of Japanese-styled pubs announced that an investment firm of Carlyle Group will conduct a tender offer at 2,260 yen a share between Nov. 9 and Dec. 21. The tender offer price is a 37% premium over its six-month average. The goal is to acquire at least a 75% stake in Chimney and delist the company from the Tokyo Stock Exchange. The acquisition cost would be around 20.8 billion yen if all shared are acquired. This would be approximately equivalent to 4 x EBITDA based on the figure provided by Chimney's latest financial filing. Chimney's top shareholder Yonekyu Corp., a listed meat packer, has agreed to the terms of the offer. Chimney, whose pub sales have declined for 8 consecutive months under anemic consumer spending and intensifying price competition, hopes to expand such business as providing food services to public entities and restaurant chains with daytime hours to target medium-to long-term growth with help from Carlyle Group.

Bain In Exclusive Talks For Citi's Bellsystem24

Bain Capital has won exclusive rights to negotiate with Citigroup Inc. to buy Bellsystem24, Japan's largest operator of call centers in a deal that could be worth more than $1 billion, according to Reuters. Bain will retain that right until Friday this week. Bain Capital opened an office in Japan in 2006.

Unison Rocked By Insider Trading Allegations

Unison Capital Inc., one of Japan's biggest investment firms, has been shaken by suspicions of insider trading surrounding a former member of its inner circle, according to Nikkei. The Securities and Exchange Surveillance Commission conducted a snap inspection of Unison's Tokyo headquarters Oct. 27 and questioned one of the company's then six partners. Unison fired the partner the same day.

Panasonic's Tender Offer For Sanyo At Last

Panasonic Corp. plans to launch its tender offer for Sanyo Electric Co. this week now that most global antitrust watchdogs have given their blessings to the planned acquisition, according to Nikkei. Panasonic and Sanyo had originally announced their plan a year ago, but the process has been delayed as antitrust regulation in 11 major markets have closely evaluated potential competition issues.

BancTech To Go Private Via MBO

BancTech Japan Inc., a listed information technology company announced that it approved a tender offer launched by BT investment Co., an investment firm established by the CEO of BancTech Japan Inc. Jafco, a leading VC firm, is the top shareholder, who agreed to the tender offer. BT investment aims to acquire all shares at 84,500 (last week closed at 48,800 yen) with a cost of around 10 billion yen. It uses mezzanine finance provided by Chuo Mitsu Capital Co., an investment arm of Chuo Mitsui Trust Group. BancTech will be delisted from the Jasdaq market.

Japan Retail REIT, LaSalle Japan REIT To Merge In March

Japan Retail Fund Investment Corp(JRF) and LaSalle Japan REIT Inc. announced that they will integrate operations next March. The deal is the second domestic merger between two listed REITs, and will create the second largest listed REIT in Japan. JRF, which is managed by Mitsubishi Corp.-UBS Realty Inc., will absorb LaSalle with an equity swap and the residential and office buildings in LaSalle's portfolio will be sold so that the fund can focus on commercial properties.

Broadleaf To Do MBO with Carlyle

Broadleaf Co., Ltd. a provider of system packages for automotive industry businesses announced that ITX Corporation and Olympus Corporation agreed to sell all their shares to the Carlyle group, a global private equity firm. After Carlyle purchased a 100% stake of the system provider, it stated that it plans to do a MBO with Carlyle later on.

Sumitomo Trust, Chuo Mitsui Trust To Merge In '11

Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holding Inc. have decided to integrate operations, with the merger most likely to come in spring 2011, according to Nikkei. The move would create Japan's largest trust bank, and the fifth-largest banking group overall.

Banks Anxious About Mortgage Payment Delay

An increasing number of mortgage borrowers are finding it difficult to keep up with their payments as they see their incomes decline because of the sluggish performance of their employer firms, according to Nikkei. Private financial institutions held a combined mortgage balance of around 111 trillion yen as of the end of August, around a quarter of their total loans, according to the Bank of Japan. These banks have become increasingly concerned because they could suffer huge losses if there is a sharp increase in mortgage payment delays.

Many Upgraded Corp. Earnings For 1H

The relatively large number of companies have upgraded their pretax earnings estimate for the first half ended September suggests that corporate performances are gradually recovering, according to a Nikkei survey. Of the 2,380 firms polled, 522 upgraded their earnings estimates for the period as of Saturday, while 349 firms made downgrades. Companies will start announcing their first-half results in earnest this week. The survey covered listed nonfinancial firms that end their fiscal years in March and have not yet announced their half-year results. About 40% of the firms that made upward revisions said their sales will either match or fall below their earlier expectation, indicating that many of them squeezed out profits as a result of restrcturing.

Jafco Saw Revenues Fall 49% for 1H

Jafco Co., a Tokyo-based leading venture capital firm announced that it logged an 800 million yen group loss for the April-September term. This was the first red ink in six halves. Revenues plunged 49% year on year to 7.1 billion yen because the company saw only 3 domestic and overseas initial public offerings among its investments. Earnings were also weighed down by losses on stock sales and by an increase in investment loss reserves.

JAL Task Force Mulls Over Rehab Plan

The government task force crafting rehabilitation plans for Japan Airlines Corp. is asking the Development Bank of Japan to provide more than 50 billion yen in debt waivers and debt-for equity swaps, according to Nikkei. With a public fund injection being considered as a likely option, the task force is pressing creditors to agree to debt relief so that a viable rehabilitation plan can be hammered out for the beleaguered airline operator. Under the rehab plan, JAL would pare back 45-50 loss-laden domestic and overseas routes by the fiscal year ending March 31, 2015. In addition, the airline would be forced to slash its work force by nearly 9,000 and halve its subsidiaries and affiliates, which totaled around 290 firms as of March 31. JAL's lenders are pressuring the task force to lobby the government to lower Japan's airport usage fees and other charges that are high compared to overseas counterparts.

Japan Post's Nishikawa To Resign

Japan Post President Yoshifumi Nishikawa announced that he would tender his resignation at a board meeting scheduled for October 28. Nishikawa spoke at a press conference saying, "There is a big difference between what I have already done and intend to do for the privatization of the Japan Post group and the new government's policy to revoke the current law to privatize the Japan Post and reorganize the group's structure."

Kansai Elec To Buy Real Estate Firm From Fund

Kansai Electric Power Co. will purchase real estate firm MID Urban Development Co. from property fund Aetos Japan LLC at an estimated price of more than 10 billion yen, according to Nikkei. MID Urban Development Co, an ex-real estate affiliate of the Panasonic Group, develops office buildings and condominiums and manages real estate investment funds. While MID has seen earnings deteriorate amid the property market slump since last year, Kansai Electric, Japan's second largest electric power company, is in the real estate business through a subsidiary that sells condos, generating about 40 billion yen in sales for this segment. By acquiring 80% of the MID Urban shares held by Aetos Japan, the utility aims to obtain property development know-how and accelerate its push for all-electric houses.

Sumitomo Trust, Axa To Set Up Y100bn Real Estate Fund

Sumitomo Trust & Banking Co. and French insurance giant Axa Group have teamed up to launch an investment fund targeting real estate in Japan, according to Nikkei. Japanese and overseas investors are expected to put up 50 billion yen for the fund. In addition, financial institutions will likely provide 50 billion yen in loans. With 100 billion yen at its disposal, it is expected to become one of the largest real estate funds established since the global financial crisis deepened last fall. Investment will begin as early as the first half of next year, focusing on office buildings in central Tokyo. Sumitomo Trust and Axa see these properties undervalued and plan to pour money into buildings that would bring an annual yield of 6-7%.

Tochigi Firms Won't Invest In Nomura-led Ashikaga Holdings

Businesses in Ashikaga Bank's home prefecture have decided to forgo investment in the bank's stock holding company, according to Nikkei. Ashikaga Holding Co.'s top shareholder, Nomura Financial Partners agreed with Tochigi Prefecture and a local business association to stop soliciting investments from local firms, citing funding difficulty amid the economic slump. Aiming to list Ashikaga Holdings on a stock exchange in fiscal 2010, Nomura Financial Partners had sought 5-10 billion yen investments from local companies.

Toyota Tsusho To Turn Sock Maker Into Subsidiary

Toyota Tsusho Corp., the sole trading firm of Toyota Group, announced that it will turn Fukusuke Corp. a major sock manufacturer into a subsidiary as part of its expansion beyond its automobile business. The trading firm currently has a 23.2% stake in Fukusuke. It plans to boost this to 75.2% at the end of the month by buying all of the Fukusuke shares held by MKS Partners, a Tokyo-based investment firm which stops new investment and focuses on selling its portfolio.

Integral To Sponsor Bankrupted Yohji Yamamoto Inc

Integral, a Tokyo-based investment firm, announced that it has agreed to sponsor both Yohji Yamamoto Inc. and Limi Yamamoto Inc. which filed for bankruptcy protection from creditors on October 9, 2009. Integral will set up a SPC to acquire businesses from internationally respected, high-end clothing brands. Mr. Yoshihiro Henmi of Integral, who was the former vice president of Adidas Japan will become chairman of the new Yohji Yamamoto Inc. and Limi Yamamoto Inc.

MUL Principal Investment Bought Tarami From Fund

MUL Principal Invetement Co., an investment unit of Mitsubishi UFJ Lease & Finance Co. purchased all shares of Tarami, a Nagasaki-based manufacturer of fruit jelly products from Sun Capital, a US investment fund who decided to leave Japan, according to Nikkan Kogyo newspaper. It was the first deal for MUL Principal Investment, which spent 7~8 billion yen for the deal and plans to deliver the board members as well as expand its fruit-jelly business.

Mitsubishi To Pump $2bn Into US Bank Subsidiary

Mitsubishi UFJ Financial Group Inc. (MUFG) announced that it has decided to inject $2 billion into Union Bank NA, its wholly owned US unit. Union Bank NA saw its bad-loan losses skyrocket to $690 million in the January-June half-year period. Through the capital injection, MUFG will put the California-based bank's financial standing on par with its US rivals.

Italian Brand Versace To Leave Japan

Italian designer brand Gianni Versace Spa will liquidate its Japanese unit by the end of the year, according to Nikkei. Gianni Versace Japan Co. had imported Versace products and sold them in Japan mainly through directly run stores but the recent global economic downturn apparently dealt the famed fashion house a severe blow. The Italian parent has been undergoing restructuring, including a management reshuffling this summer.

Nomura To Raise Capital For Global Expansion

Nomura Holding Inc. announced that it would raise capital through a public issuance of new shares last month. As the offering was equivalent to about 29% of the outstanding float of stock, investors once sold the shares on dilution concerns, but later repurchased them after learning of very high demand from overseas investors. The largest securities house said Monday that it will issue stock at 568 yen per share and receive fresh capital of as much as 432.8 billion yen. Nomura aims to use proceeds for investments in growth fields in the US and other markets.

SBI Fund To Launch Tender Offer For Narumiya Int'l

SBI Holding Inc. announced that its investment fund will launch a tender offer to buy an additional stake in Narumiya International Co., a major children's and toddlers' wear retailer, boosting the fund's stake in the company to 100% from the current 58%. The SBI Value Up fund will buy Narumiya at 45,000 yen per share, with total costs of about 1.14 billion yen. Narumiya said that it has agreed to the tender offer and its shares will be delisted from the Jasdaq Securities Exchange.

Mitsui Sumitomo Insurance, Aioi and Nissay Dowa Merge

Mitsui Sumitomo Insurance Group Holdings Inc., Aioi Insurance Co. and Nissay Dowa General Insurance Co. reached an agreement on their business integration. The companies plan to integrate operations next April under a holding company named MS&AD Insurance Group Holding Inc. It will be Japan's largest non-life insurance company by premium revenue. Mitsui Sumitomo President Toshiaki Egashira will become the holding company's president.

Toy "R" Us To Delist Ailing Japan Unit

Toy "R" Us - Japan Ltd announced that an investment company affiliated with its US parent will launch a tender offer for its stock. The Japanese firm will be delisted from the Jasdaq Securities Exchange upon the successful conclusion of the deal. The investment company seeks to acquire all outstanding stock by offering 597 yen per share, a sizeable premium over the current stock price of 371 yen. The Japanese unit is struggling amid weak consumer spending. The US parent aims to boost its operating efficiency under private ownership.

Davinci's Real Estate Fund Defaults

Davinci Holding KK, a Tokyo-based real estate operator, announced that a special-purpose company under its umbrella has defaulted on loans. The loans were non-recourse ones backed by the Pacific Century Place, a property in Tokyo's Marunouchi district, that Davinci's real estate fund acquired in 2006 for about 200 billion yen. The fund met with lenders ahead of last Friday's repayment deadline to discuss an extension, but the parties were unable to reach agreement.

Aiful To Enter ADR Turnaround Process

Aiful Corp., the nation's second biggest consumer lender, announced that it would ask its creditors to extend their repayment deadlines for loans worth about 300 billion yen under an alternative dispute resolution (ADR) deal, which would be mediated by a third party as part of a privately orchestrated workout plan. The ailing consumer finance company also plans to halve its workforce from 4,600 to 2,000 full-time positions on a consolidated basis in about a year. Japanese non-bank lenders continues to struggle with tighter regulations and shrinking demand.

Willcom To Enter ADR Turnaround Process

Willcom Inc., a personal handyphone service provider, announced that it will enter an alternative dispute resolution process (ADR) in part to ask its creditors to extend repayment dealines on outstanding debt of about 100 billion yen. Willcom is 60%-owned by major US investment fund Carlyle Group.

Toyota To Sell Securities Unit To Other Broker

Toyota Motor Corp. (Toyota) has decided to sell Toyota Financial Services Securities, its brokerage unit to Tokai Tokyo Holdings Inc. as part of efforts to consolidate resources into automobile operations, according to Nikkei. Toyota established its own brokerage unit in 2000, offering services mainly to individuals.

Hatoyama Enjoys 75% Approval Rating: Nikkei Poll

The Hatoyama new cabinet's approval rating stands at 75%, the second-highest approval rating ever for an incoming government, according to a survey conducted by Nikkei and TV Tokyo Corp. The all-time high was the 80% of Junichiro Koizumi's government, which took power in April 2001. The strong support indicates the public's high expectations for the new government's drive to take policymaking power away from bureaucrats.

70% of Shoppers For Store-Brand Products

According to a Nikkei Online survey, 67% of consumers intend to turn to more private-label products to save money. Aeon Co's Topvalu brand was the most popular store brand. It was trailed by the Seven Premium brand offered by Seven & i Holding Co. As store-brand labels grow more popular, consumers are likely to demand added value in addition to low prices.

JAL to Cut 29 Domestic Flight, Ax 6,800 jobs

Japan Air Lines Corp(JAL) plans to eliminate 29 domestic flight and slash 6,800 jobs over three years, according to Nikkei. Additionally, the struggling airline plans to cut 21 international flights. JAL is also slated to sell shareholdings in JALway Co. and other subsidiaries, trim benefit payouts on corporate pensions. Savaged by the global economic downturn and the A/H1N1 influenza epidemic, JAL's earnings have suffered.

Delta, American Mulling Over JAL Investment

US carrier Delta Airlines and American Airlines are said to be considering investing in Japan Airline (JAL), Asia's largest airline by revenue. JAL lost about $1 billion last quarter and is under growing pressure to raise money and slash costs. Delta and American are aiming to secure partnership ties and boost revenue from Asia.

Yoshimoto Approves Tender Offer From Investment Firm

Yoshimoto Kogyo Co (Yoshimoto)., one of the major talent agencies, announced that it approved a tender offer launched by Quantum Entertainment Co. representing a consortium of about 20 firms. Quantum Entertainment is a unit of Quantum leaps Co. led by former Sony chairman Nobuyuki Idei. Its shareholders are Fuji Media Holdings Inc., Nippon Television Network Corp and 3 other private broadcasters, Dentsu Inc. and Softbank etc. The total acquisition cost will be about 50 billion yen. Yoshimoto will be delisted from the Tokyo Stock Exchange and the Osaka Stock Exchange.

Daiwa To Buy Sumitomo's Stake in Joint Venture

Daiwa Securities Group Inc., Japan's second-largest brokerage, said it will buy a 40% stake in Daiwa SMBC, an investment banking joint venture held by its partner Sumitomo Mitsui Financial Group (SMFG) for 200 billion JPY ($2.2 billion USD), making the venture 100% owned by the end of December. Since SMFG merged with Nikko Cordial Securities, Daiwa's biggest competitor from Citigroup in May, Daiwa Securites and SMFG couldn't help going separate ways.

New City's Lone Star Plan Killed By 2nd Creditor Rejection

New City Residence Investment Corporation (NCRI) announced that the plan to restructure under the umbrella of US investment fund Lone Star was turned down again by major debt holders at the creditors' meeting. Terminating the sponsor agreement with Lone Star Real Estate Fund(US) LP, the failed REIT is to look for a new investor and avoid liquidation. The Daiwa House Industry Co. has shown strong interest in obtaining it.

CSK Holdings To Boost Capital From ACA

CSK Holding Corp., a information service company, announced that it will issue about 16 billion yen in preferred shares and around 6 billion yen in equity warrants to Ant Corporate Advisory (ACA) Inc., a Tokyo-based investment firm affiliated with Sumitomo Corp. CSK will also issue 30 billion yen in preferred shares to four partner banks-- Sumitomo Trust & Banking Co., Sumitomo Mitsui Banking Corp., Bank of Tokyo-Mitsubishi UFJ and Mizuho Corporate Bank -- under a debt-for-equity arrangement. In addition, the banks will roll over about 50 billion yen in outstanding short-term debts by converting them into longer-term debts. Those capital-enhanced steps will be implemented on Sep. 30 following approval at an extraordinary shareholders meeting.

Nikko Principal Restarts BellSystem24 Sale (2)

Nikko Principal Investment Japan Ltd., a private-equity unit of Citigroup Inc. has narrowed its list of potential buyers for Bellsystem24 Inc to three overseas investment funds, according to Nikkei. US fund Bain Capital LLC, British fund Permira Advisors Ltd. and CVC Capital Partners, passed the first round of bidding, which ended Sep 1. Bellsystem24 logged revenue of 115.7 billion yen ($1.15 billion USD) and an operating profit of 13.7 billion yen ($137 million) for the fiscal year ended Feb 28. The acquisition price is expected to exceed 150 billion yen ($1.5 billion USD).

Nikko Principal Restarts BellSystem 24 Sale

Nikko Principal Investment Japan Ltd., a private-equity unit of Citigroup, has restarted efforts to sell Bellsystem 24, the country's largest call center company, with the first round of bidding due to Sep. 1, according to Nikkei. It is expected to be worth around $1.5 billion. Bidders are said to be KKR, Permira, Blackstone, TPG, Bain, CVC, Advantage Partners, Unison Capital and Itochu Corp.

Dainippon Sumitomo Launches TOB for Sepracor

Dainippon Sumitomo Pharma Co(DSP)., Japan's 7th largest pharmaceutical company by sales, and Sepracor Inc, the Nasdaq-listed company, agreed that DSP intends to acquire all of the shares of Sepracor through a tender offer for $2.6 billion. DSP will pay $28 for each of Sepracor shares, representing a 28% premium to its closing price on Sep 1. The Osaka-based drug maker gains a US sales force and experimental treatments in the world's biggest drug market.

Marunouchi Capital Became Top Shareholder of Home Center Firm

Marunouchi Capital, a Mitsubishi Corp’s affiliated investment fund will acquire a 33.4% stake in Joyful Honda Co., a Kanto-based home center operator, according to Nikkei. The fund is to pay about 20 billion yen for new issues, becoming the principal shareholder with the aim of its IPO in 2013 or later. Joyful Honda runs 14 home centers where sales are roughly 145 billon yen and net profit is 6.3 billion yen. For Marunochi capital, this is the second investment following the acquisition of a 15% interest in Tomy Co. a major toymaker in May.

CVC Gave Up Skylark Shares

CVC Capital Partners, a UK investment fund, is no longer the second biggest shareholder of Skylark Co., a major family restaurant chain operator, after CVC failed to pay back a loan owed to Chuo Mitsui Capital Co(CMC). In 2006 CVC invested roughly 60 billion yen, some of which was borrowed from CMC when a management buyout for the the family restaurant operator was launched. Nomura Principal Finance Co., a Nomura Holding investment unit, owns a 77.7% stake. CVC was said to hold a 20.9% stake. Skylark has posted losses for three consecutive years.

Housing Starts Fall 32.1% in July

Domestic housing starts fell 32.1% year on year to 65,794 in July, making the eighth straight month of decline, according to the Ministry of Land, Infrastructure, Transport and Tourism. Starts for condominiums plunged 71% to 3961, which is a record-low since January 1985. The Land official mentioned it was in the process of inventories-adjustment, although they are decreasing. While consumers are cautious about big-spending due to deteriorating job and income conditions, banks are still reluctant to lend money to those developers.

DPJ Takes Power In Landslide Victory

The Democratic Party of Japan(DPJ) has ousted the long-dominant Liberal Democratic Party (LDP), clinching 308 of the 480 seats in Sunday's lower house vote. Media reported that DPJ began with a big lead, but the result was still a big shock to the LDP members. Before the election, the LDP had 300 seats and its partner New Komeito had 31, compared with just 115 held by the DPJ. DPJ President Yukio Hatoyama will become the country's next prime minister in a special Diet session scheduled for mid-September.

Unemployment Rate Hit Record 5.7% in July

Japan's seasonal adjusted unemployment rate rose 0.3% month to month to 5.7% in July, surpassing the previous record high of 5.5% in April 2003, according to the Ministry of Internal Affairs. Economists predicted 5.5%. Japan's average monthly income per household fell 2.4% in nominal terms and was up 0.2% in inflation-adjusted terms in July, while consumption expenditures fell 4.5% nominally and was down 2.0% in inflation-adjusted terms. It signals that households are unlikely to help sustain a recovery.

Norinchukin Posted Y70Bln Pretax Profit For April-June

Norinchukin Bank, the central bank for agriculture and fishery cooperatives have posted Y78.9 billion in parent-only pretax profit for the April-June period, surpassing the Y70 billion target for this entire fiscal year. The bank earned the profit from sales of government bonds and other securities. Its capital adequacy ratio rose to 17.10% as of June 30, an increase of 1.45% over March 31.

40 Firms To Put Up Y30bln For REIT Support Fund

About 40 companies will contribute a total of 30 billion yen to a public-private REIT support fund that will be established next month to ease the credit crunch facing real estate investment trusts, according to Nikkei. In addition to the cash from corporations, roughly 360 billion yen will be borrowed through loans from large banks. The Development Bank of Japan will extend a subordinated loan of some 60 billion yen. Mitsui Fudosan Co. and Mitsubishi Real Estate Co. are said to be investing about 3 billion yen. Tokyu Land Corp, Tokyo Tatemono Co. and Nomura Real Estate Holdings Inc. will put up 2 billion yen apiece. The three magabanks are expected to invest 1 billion each.

Land Prices Showing Slower Declines

Although the downtrend in nationwide land prices is continuing, the rate of decline is easing at more locations according to a quarterly survey released by the Ministry of Land, Infrastructure, Transport and Tourism. Prices in 147 major locations, or 98% of a total of 150, were lower from three months earlier as of July 1. But the number of districts that registered smaller price declines this time around increased to 57 from the prior survey's 26. Expectation for economic recovery with diminishing condo inventories may put a floor under land prices in the future.

3 Domestic Firms Vying For REIT under Failed Pacific Holdings

The candidates seeking to become the sponsor of Nippon Commercial Investment Corp., a real estate investment trust under failed property firm Pacific Holdings Inc., have been narrowed down to 3 Japanese firms, according to Nikkei. They are leasing firm Orix Corp., trading house Marubeni Corp. and building maintenance service provider Nippon Kanzai Co. Nippon Commercial, which invests in office buildings and commercial facilities, has assets of about 250 billion yen ($2.5 billion). Following Pacific Holding's bankruptcy filing in March, it has been looking for a new sponsor to help with refinancing loans and obtaining funding for bond redemptions. Initially 6 firms including 3 from overseas showed interest.

Mizuho Trust Offers Property Fund For Pension

Mizuho Trust & Banking Co. will for the first time form a real estate investment fund aimed at pension plans, according to Nikkei. Considering that pension funds have a conservative investment approach, the bank will not take any leverage. Instead, Mizuho Trust will use the 5.5 billion yen amassed from 8 or so pension funds to invest in residential rental properties in Tokyo's 23 wards. The bank, which deems current property prices undervalued, will directly manage the fund and target a 5% return. Typically private real estate funds are created by start-ups in the industry, with about 70% of the money coming from loans. These funds have mostly been avoided by pension plans, which are risk-averse.

SBI Buys Hikari Tsushin's Venture Capital Business

SBI Holding Inc., a financial conglomerate and Hikari Tsushin Inc., a leading sales agency in mobile phones & office equipments, agreed to the transferring of executive authority cooperative operation/development of the Venture Fund Business owned by Hikari Tsushin's subsidiary KK Hikari Private Equity (HPE). SBI Group operates a variety of venture capital businesses with particular interest in the IT and Bio/Environmental sectors. The group's venture capital branch boasts top total operation assets of 250 billion yen ($2.5 billion) and has a record of over 100 companies' IPO and M&A exits. On the other hand, HPE plans and operates venture funds primarily in the IT/Telecoms (mobile content/media included) sector, the environmental sector and the medical/healthcare sector, which may have assets of more than 10 billion yen ($100 million). This deal would allow Hikari Tsushin to focus more management resources towards sales activities such as OA equipment, insurance policies and mobile phone sales and other expansion operations.

CITIC to Acquire Y450 mil In Real Estate Manager

CITIC International Asset Management Ltd (CIAM), CITIC's HK-based asset management company will acquire the right to subscribe to new shares in Japanese real estate investment firm MBK Co. (formerly known as Asset Investors) for about 450 million yen ($4.5 million). CIAM, if it chooses to exercise the right, would receive a 4.88% stake of the firm'soutstanding stock. CIAM and MBK work to promote investment in businesses between China and Japan.

April-June GDP Rises Annualized 3.7%

Japan's real gross domestic product grew 0.9% in April-June from the prior quarter-annual pace of expansion of 3.7%. It was Japan's first quarter of GDP growth since January-March 2008, driven by a pickup in exports and private consumption. External demand, measured by exports minus imports, pushed up overall growth by 1.6%, reflecting increasing demand from China and other Asian countries. Private spending rose 0.8% on the back of the Japanese government's efforts to support consumers. In negative contributions, capital spending, which has been steadily slumping throughout the downturn, dropped 4.3%. Deteriorating employment conditions and falling incomes depressed spending on housing down by 9.5%.

Ozeki to Go Private Via MBO

Ozeki Co., a Tokyo-based supermarket operator, announced that it will become a privately owned stock company through a management buyout. A company established by Ozeki Chairman and President Sumie Ishihara will launch a tender offer for Ozeki for 3,750 yen, about 24% premium over its Friday's closing price. The president's firm will spend about 43.8 billion yen ($438 million) to purchase 11,704,080 shares, with the minimum amount set as 8,832,190 shares. Ozeki will be delisted from the second section of the Tokyo Stock Exchange.

Foreigners' Buying Fuels Nikkei Rebound

Overseas investors are ramping up their purchase of Japanese stocks, with net buying since April amounting to 2.08 trillion yen ($20.8 billion), up 26% from a year earlier, according to Nikkei. With individuals, pension funds and other investors all unloading shares, foreigners are fueling the rise in the Nikkei Stock Average, which rebounded to the 10,500 level. Hedge funds and other overseas investors had been net sellers of Japanese stocks to the tune of about 6 trillion yen ($60 billion) from September 2008 to March 2009.

Sapporo Brewer to Form Capital Alliance with Soft Drink Maker

Sapporo Holding Ltd., Japan's 4th-largest brewer and Pokka Corp., an unlisted soft drink maker reached a basic agreement on a capital and business alliance. Sapporo announced that it would acquire a 21% stake of Pokka Corp. Pokka became unlisted through a management buyout with investment fund Advantage Partners and Citic Japan Partners in 2005. Meiji Holding Co., a confectionery and dairy products maker acquired about a 21% stake of Pokka from funds in 2008 as a strategic buyer. At this time Sapporo will invest the same amount as Meiji.

This tie-up as well as the mega-merger between Kirin and Suntory could lead to more consolidations in the food industry.

Overseas Financial Firms Once Again Strengthening Japan Ops

Some foreign financial companies are shifting from downsizing their Japanese operations to augmenting perceived growth areas such as investment banking and services for wealthy clients, according to Nikkei. Barclays Capital Japan Ltd. for example, plans to hire more than 100 new employees over the next one to two years to grow its ranks to 850. The expansion will target mainly the investment banking and Japanese equity divisions. The HSBC Group and Credit Suisse who are also trying to beef up their private banking businesses, are vying for a piece of the 1400 trillion yen ($14 trillion) in Japanese household assets.

Unison Capital Raises 140 billion yen($1.4 billion)

Unison Capital Group, a leading Japanese private equity firm, has closed its buy-out fund "Unison Capital Partners Ⅲ L.P." with 140 billion yen ($1.4 billion) in commitments, according to their news release. Unison spent more than a year raising the money from institutional investors at home and abroad amid a reluctance to invest in funds. In Japan, even before the financial turmoil, there were only a few cases of funds larger than 100 billion yen ($1 billion) being created.

Mitsubishi Chemical To Acquire Mitsubishi Rayon Via Tender Offer

Japan's leading chemical producer, Mitsubishi Chemical Holdings Corp. plans to turn resin maker Mitsubishi Rayon Co. into a wholly owned unit around next spring through a tender offer, according to Nikkei. Their combined sales come to about 3.2 trillion yen based on their fiscal 2008 results, surpassing US chemical giant DuPont's roughly 2.9 trillion yen. The deal, worth up to $1.5~2.0 billon, would be a major consolidation in Japan's chemical industry, which faces fierce competition from rivals in emerging economies.

Carlyle Group Freezes Investment In Smaller Japanese Firms

The Carlyle Group has suspended investments in midsize and small Japanese companies, with the US private-equity firm shifting emphasis to comparable businesses in India and China, according to Nikkei.

The firm's Asia Growth Capital group targets midtier businesses with high growth potential, investing in such firms as the Oita-based Nakaya Microdevices Corp. in 2007. But with more promising candidates in China and India, the group halted new investments in Japan at the end of June. Haruyasu Asakura, who had been a key member, left for a senior position at a public-private fund. In Japan, the Carlyle Group will focus on buyout deals and real estate investments.

M&A Activities Dull in 1st Half

According to data by the M&A advisory firm Recof Corp, 972 mergers and acquisitions took place in Japan between January and June, down 19% from a year earlier. The aggregate value of all deals for the same period dropped 57.3% to 2.22 trillion yen(22 billion). M&A transactions among domestic firms slid 17.4% to 763, while foreign businesses transactions by Japanese firms fell 24.5% to 74. Purchase of Japanese companies by overseas buyers also tumbled 24.2% to 135.

Japanese Investors Flocks Over Foreign Stocks, Bonds

According to Nikkei, Japanese retail and institutional investors have begun snapping up foreign stocks and debt securities, especially those in emerging economies, on growing expectations of an early economic recovery.

Domestic investors were net buyers of foreign securities for the first six months of the year to the tune of 14.47 trillion yen. Investment trusts created by Japanese financial institutions for public subscription held a combined 25.69 trillion yen in foreign stocks and bonds at the end of June. Behind the increase was active investment in assets in emerging economies and higher-yielding currencies, as well as rebounds in foreign stock prices, which boosted existing asset values. Of the 25.69 trillion yen in overseas holdings, 32.3% was held in dollars. The ratio of assets owned in Australian dollars rose to 12.1% while holdings in Brazilian real estate increased to 3.8%. The Global Sovereign Open fund, which has 4.47 trillion yen in assets under management, invest primarily in bonds issued by the US and major European government. However, Kokusai Asset Management Co., which manages the fund, recently decided to add debt securities issued by Portugal and Greece to the fund's portfolio because the bonds yield more that its existing holdings.

Japanese banks and insurance companies are also boosting investment in foreign stocks and bonds as the global financial markets regain stability. Daido Life Insurance Co., for example, is expanding investment in unlisted shares to 180 billion yen from the current 128.3 billion yen, a company official said. At present, it has poured about 114 billion yen into unlisted overseas shares. Norinchukin Bank, the central bank for agricultural and fisher cooperatives, has increased its weighting in foreign bonds, which yield more than Japanese government and corporate bonds.

5 Big Banks In The Black In April-June Quarter

Five of Japan's six biggest banks logged consolidated net profits for the April-June quarter as a rally in stocks limited write-downs and helped them recover form a poor fiscal 2008. The five banking entities are Mitsubishi UFJ financial Group Inc., Sumitomo Mitsui Financial Group Inc., Resona Holding Inc., Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holding Inc. Only Mizuho Financial Group Inc. reported a consolidated net loss of $44 million due to a $600 million valuation loss of CDS. Both Mitsubishi and Mitsui-Sumitomo logged a $100~300 million valuation loss of CDS but managed to be stay above water in the consolidated basis.

All 18 Major Brokerages in the Black In April-June Quarter

The 18 major brokerages all reported net profits for the April-June quarter on a stock recovery and more fundraising by corporations.

Nomura Holding Inc., Japan's number one securities house, posted a group net profit of $114 million in the April-June period, the first positive figure in six quarters. Daiwa Securities Group Inc. also returned to positive territory for the first time in four quarters with a net profit of $178 million. Likewise, Nikko Cordial Securities Inc. showed a net profit of $82 million for that period. Mizuho Securities Co. logged a net profit of $1.3 billion, the largest among them, due to its merger with Shinko Securities Co. in May, lifting its bottom line by $1.1 billion.

University of Tokyo Venture Capital Firm To Launch New Fund

A University of Tokyo-affiliated venture capital company will set up an investment fund targeting start-ups looking to cash in on the research achievements of the university and other institutions, according to Nikkei. The fund, to be established with about $35 million in capital from banks, life insurers and other investors, will be the second from University of Tokyo Edge Capital Co., which began in 2004. The first fund has invested in companies such as Tella Inc., a bio-venture company which is developing cancer treatments and went public last year.

Sumitomo Trust To Buy Nikko Asset From Citi

The Sumitomo Trust & Banking Co., Japan's fifth largest bank, has agreed to buy Nikko Asset Management, Citi's asset management unit in Japan for about $1.1 billion in October. Nikko Asset has $88 billion in assets under management and the acquisition will make Sumitomo Trust & Banking one of the biggest asset management firms in Japan.

In May, Citi sold Nikko Cordial, the retail brokerage house to Sumitomo Mitsui Financial Group (SMFG), Japan's third-largest bank. Since Nikko Cordial has been the main distributor of Nikko Asset's funds, Sumitomo Trust may consider selling a stake in Nikko Asset to SMFG.

DBJ-Nomura JV to Handle Public-Private REIT Fund

According to Nikkei, the operation of a public-private fund for struggling real estate investment trusts will be outsourced to DBJ Nomura Investment Co., a 50-50 joint venture between the Development Bank of Japan and Nomura Holdings Inc.

The fund is expected to total around $3-5 billion and will primarily provide financing to help REITS redeem bonds. About 80% of that figure will come from loans from major banks, while 13% will be provided by the DBJ through subordinated loans. Real estate companies and other entities will supply the remaining 7%. The fund will have a maximum investment period of five and a half years and will start providing financing to REITs within two and a half years of its establishment. It will target REITs with sound finances and provide loans in exchange for real estate as collateral.

Hitachi to Take Over 5 Listed Units

According to Nikkei, Hitachi Ltd., a leading global electronics company plans to take full control of 5 listed group firms by spending up to $3 billion on tender offers. Those group firms are Hitachi Maxell Ltd. (TSE#6810), a major manufacturer of magnetic tapes for computers, Hitachi Plant Technologies Ltd(TSE#1970), a plant installation engineering company, Hitachi Information Systems (TSE#9741), a leading data processing company, Hitach Software Engineering Co.(TSE#9694), a major computer software developer and Hitachi System & Services Ltd. (TSE#3735), a computer system integrator.

As the result of a consolidated net loss of $7.8 billion last fiscal year, the company will need to take drastic measures to organize the whole business as well as review its capital relationship with its units under the rein of Takashi Kawamura, Hitachi's new president.

Itochu Plans to Buy REIT Nippon Residential

Itochu Corp, one of the big 5 trading firms in Japan, plans to acquire Nippon Residential Investment Corp., a real estate investment trust (REIT) under the failed real estate fund opearator, Pacific Holdings Inc. according to Nikkei. If the acquisition of Nippon Residential succeeds, Itochu will combine it with Advance Residential Investment Corp,. Itochu's group REIT to create the largest investment trust in residential properties. Such a merger between REITs has not done yet in Japan. Since the parent company went bankrupt, Nippon Residential has been looking for a sponsor so that it can refinance its debts/bonds.

As the government has supported the real estate market with various kinds of measures, the property market seems to be stabilizing in big cities and we may see further consolidation of the REIT industry.

Small Business Confidence Improves 1st Time In 9 Quarters

The diffusion index for business sentiment among small and midsize firms across all industries edged up 0.9 points on the quarter to -53.7 in the April-June period, marking the first improvement since the January-March period in 2007, according to the survey by Japan Finance Corp. The DI for small firms also climbed 1.1 points to -82.5 for the first expansion in 6 quarters. For the next quarter, the survey expects the DI to be up 1.5 points but the small firms' index to be down by 3.8 points.

Prime Minister Taro Aso Dissolved Lower House

Japanese Prime Minister Taro Aso dissolved the lower house of parliament for a general election on August 30 (the term of the lower house will expire on September 10 anyway). Public surveys indicate that his ruling Liberal Democratic Party (LDP) could well lose to the main opposition, the Democratic Party of Japan (DPJ). This year the LDP has experienced a series of defeats in major local elections and declining support. It will be the first general election since September 2005, when then Prime MInister Junichiro Koizumi, who enjoyed strong popularity throughout his years in office, helped the LDP secure more than 300 seats in the 480-seat chamber. In the event that the DPJ gains a majority, the bureaucrat-initiated policy making system might be replaced by a politician-initiated one. The DPJ's policy is, in general, more populist than that of the LDP so the LDP seeks to throw doubt on how the DPJ will secure financing for their policies when it is well know that populists tend spend freely.

The head of the Japan business Federation expressed that this would be a very important election which would decide Japan's fate. The chairman of the Japan Association of Corporate Executives also noted that this election will be a historic opportunity to select a government.

Real Estate Fund To Plan Cinema Resort With Paramount

Sun Capital Management Corp., a Japanese management firm of real estate funds (no relationship with US buyout fund Sun Capital Partners), plans to open a resort complex in Osaka as early as 2012 in cooperation with the Paramount Pictures group of the US. Sun Capital and its investment arm, Osaka Investment Management said that they were exploring the development of a Paramount-branded complex that would include retail, dining, and entertainment facilities as well as a 5-star hotel.

Public-Private Fund to Bolster Tech Firms (2)

More details about the public-private (industrial innovation) fund are disclosed, according to Nikkei published last weekend. About 20 major Japanese companies will invest $5 million each in the fund, which includes Panasonic Corp, Tokyo Electric Power Co., Sharp Corp, Hitachi Ltd., Nippon Oil Corp., Osaka Gas Co., Sumitomo Electric Industries Ltd.. Asahi Kasei Corp., JGC Corp. and Sumitomo Chemical Co. In addition to $820 million from the government, the fund will start with $900 million in capital. The government plans to boost the capital to roughly $2 billon in the future by soliciting investment from overseas institutional investors and others. The fund will support start-ups and cutting-edge technologies with promising futures.

Public-Private Fund to Bolster Tech Firms

According to Nikkei, the government plans to set up a public-private investment fund with the establishment of the fund's operating company which is set for July 27. The government will provide $820 million in capital to the operator, a stock company due to be disbanded after 15 years. The new company will also have up to $8 billion in loans guaranteed by the government. In total, about $9 billion will likely be available for investment. The public-private fund will support companies with advanced technologies in environmental protection, medical treatment, and other areas.

Creditors For Failed Reit Reject Lone Star Plan

Creditors of New City Residence Investment Corp (NCRI)., Japan's first failed real estate investment trust, rejected Lone Star Fund's rehabilitation plan. The plan attracted just 31% of the voters at a creditors meeting, failing to secure the majority support needed for approval. Creditors are said to be unhappy with the plan, which proposed to repay them only after five years. NCRI, one of the biggest residential REITS in Japan, filed for a court-protection business rehabilitation in October. Lone Star was the winning bidder for NCRI this year.

NCRI will reconvene a creditors meeting on September 9, by which time it must convince creditors to back a revised Lone Star proposal, find a new sponsor, or face bankruptcy. In terms of new sponsors, Blife Investment Corp and Daiwa House Industry Co. are stepping forward.

Shionogi Cancels Pact To Buy Victory Pharma

Shionogi & Co., an Osaka-based major pharmaceutical company, announced that Sciele Pharma Inc., a US-based group company of Shionogi & Co. has scrapped its plan to buy Victory Pharma Inc., a privately-held specialty pharmaceutical company. According to its press release, it was due to the occurrence of an unforeseen development that occurred after the agreement was signed. Shionogi announced in May that Sciele Pharma would buy Victory Pharma for $150 million.

June Corp Prices Showed Largest Drop

The Bank of Japan announced last Friday that Japan's corporate goods price index (CGPI) fell 6.6% year on year to 102.6 (100@2005) in June, marking the largest drop since comparable data became available in 1960. It was due to declining raw materials prices. On a month on month basis, the index dipped 0.3%.

Despite recent upgrades to the government's and the BOJ's economic outlooks, these figures suggest the Japanese economy still faces a significant deflationary risk. A supply-demand imbalance puts a lid on product prices. Falling prices hurt corporate profits and can indirectly depress consumer spending through concerns over employment and wages. Corporations try to break the vicious cycle with demands for natural energies or BRICs.

Japan's Kirin, Suntory in Merger Talks

Kirin Holdings Co., a Japanese drink and health conglomerate and Suntory Holding Inc. an unlisted beverage giant, are negotiating a merger, according to Nikkei today. The merger entity would be the largest in both the Japanese beer and soft drink markets with combined group sales of $410 billion. It would be bigger than Belgian-based Anheuser-Busch InBev and Coca-Cola Co. of the United States and on a par with US food and beverage giants PepsiCo Inc and Kraft Food Inc..

FSA To Reprimand Chuo Mitsui, Shinsei and Aozora

According to Nikkei, the Financial Services Agency plans to issue business improvement orders to Chuo Mitsui Trust Holdings Inc., Shinsei Bank, and Aozora Bank this month after they failed to meet earnings targets set in exchange for receiving public funds.

Regarding Chuo Mitsui, its decision to give up to repaying the public funds by August 1 will make the government the top shareholder through the conversion of its preferred shares into common stock. This dragging recession has started to polarize the banking world in Japan as well.

Machine Orders Fell Unexpectedly by 3.0% in May

Japan machinery orders, a leading indicator of capital spending, were down by 3% in May from a month earlier. It was against a median market forecast for a 2.1% increase. Orders from non-manufacturers are still weak, reflecting concerns over domestic demand. Orders for manufacturers are mixed. Some are picking up from overseas demand, others are not because of falling prices. The world's second largest economy is standing on its threshold right now.

Nikkiso To Buy Leading German Pump Maker From Funds

Nikkiso Co., the third largest pump maker in Japan, announced that it will acquire Lewa Gmbh, the world 's biggest manufacturer of pumps for refineries and other large-scale applications for $230 million. Tokyo-based Nikkiso will acquire Lewa from two major shareholders whose funds are managed by Deutsche Beteiligungs AG, a leading German mid-market private equity company and Quadriga Capital, a German private equity company with a track record of more than 20 years. Nikkiso said it and Lewa can complement each other both in products and marketing and that the move will allow Nikkiso to expand its product lineup.

New Issues Rush In Equity Market

Orix Corp announced that it will raise up to $ 1 billion through a new share issue in order to strengthen its financial health and prepare for future expansion. Daiwa Securities Group Inc. also announced that it will raise up to $2.4 billion through a public offering plan for the first time in nearly 20 years. Mizuho Financial Group Inc., the second largest bank by assets, said that it plans to raise about $6 billion in new capital through a share issuance.

Those sizable new issues in July may put a lid on the market.

Kenedix Sells Its Largest Office Building to Carlyle

Kenedix Inc., a listed real estate company, sold KDX Toyosu Grand Square, a large office building developed by it in Shinonome, Koto-ku, Tokyo to a fund managed by The Carlyle Group. The office building is Kenedix's largest development project, which was completed in May 2008. It is located in the Tokyo Bay area, which is currently undergoing substantial redevelopment. Each floor boasts approximately 5,000 square meters of office space, and is furnished throughout with high-spec equipment and fittings.

We had heard that Kenedix would sell it to an European investor at $400 million. Since the investor turned down the deal, Kenedix has been looking for buyers and at last was able to sell to one of the world's largest private-equity firms. The price was not disclosed yet but is estimated to be somewhere around $350 million, which yields 7%.

Ant Corp Helps Battered CSK

CSK Holding Corp. reached a basic agreement with Ant Corporate Advisory Co, a Tokyo-based Investment fund, about a capital injection, issuing preferred stock of more than $150 million. CSK incurred a great amount of debt from the real estate business, though it was an information service company. As part of its restructuring, management will focus on improving its balance sheet and getting rid of the real estate division. With help from Ant Corp. whose top shareholder is Sumitomo Corp., CSK plans to achieve the goals mentioned above.

Aozora and Shinsei Agreed to Merge

According to their press release yesterday, Aozora Bank and Shinsei Bank announced that the banks have agreed to a merger of equals, subject to approval from shareholders and relevant regulatory authorities and the satisfaction of certain other conditions. The banks received approvals from their respective Boards of Directors. The new entity will be the sixth largest banking group in Japan with total assets of about 18 trillion yen on an aggregated basis as of March 31, 2009. It is expected that Mr. Norito Ikeda, who is currently a Special Advisor to AT Kearney KK and former President of Ashikaga Bank, will be nominated to the Board of Directors and named President and CEO.

The merger process was said to be ups and downs thanks to the speculation of major shareholders. But the bottom line was that since both banks incurred large amounts of red ink, it would be a unlikely for each of them to survive by themselves in the future.

BOJ Tankan Improves, though less than expected

According to the Bank of Japan's quarterly tankan survey of business sentiment, the key diffusion index measuring business sentiment improved to -48 from -58 in the previous quarterly survey in March, still slightly below the consensus expectation for a rise to -43. The companies see the index rising to -30 in the September survey, indicating they expect further improvement.

We have seen the pace of production cutbacks slowing and exports recovering. In the long run, people are afraid that the recovery will be slow and gradual.

Industrial Output Rises 5.9% In May

Japanese industrial production in May increased 5.9% from the previous month the Ministry of Economy, Trade and Industry reported on Monday.　This is the third straight positive figure. The rise in output was led by the automobile, electronics, and iron and steel sectors but almost all sectors saw increases. Production fell only in the pulp, paper and textile sectors.

Now the question is, "is it sustainable or not?" Manufacturers said that they expected output to increase 3.1% in June and 0.9% in July, implying that it may run out of steam.

Japan Public Pensions Posted Record Loss in FY08

According to Nikkei, the investment return on public pensions show about a minus 10% in fiscal year 2008. This is a record loss on a fiscal year basis, wiping out all profits made in the last 8 years. Public pension manage about $1.5 trillion. Corporate pension funds also show about a minus 17%, which is worse than public ones, for they invested in more equities. The Welfare Ministry has set a 4.1% annual return over the long term. If return falls short, the government will have to reconsider steps such as hiking premiums.

J Will to Sponsor Bankrupt Condo. Developer

J Will Partners, a investment fund, plans to sponsor Morimoto Co Ltd., a bankrupt condominium developer, by injecting about $3 million in capital. Morimoto Co Ltd. filed for bankruptcy last November with roughly $1.68 billion in liabilities. The Development Bank of Japan is providing $30 million in debtor-in-posession financing. J Will Partners is one of a few investment funds with expertise in turnaround as well as real estate.

As the real estate market has stabilized in accordance with the equity market, some aggressive players have started to bottom-fish in the property market.

3 Bidders Left for Nikko Asset

According to Nikkei, Citigroup has cut its list of candidates to Sumitomo Trust & Banking Co., T&D Holdings Inc and Bank of New York Mellon Corp. By acquiring Japan's third-largest fund manager with about $90 billion in AUM, Bank of New York Mellon hopes to boost its presence in the Japanese financial industry. Both Sumitomo T&B, one of Japan's leading trust bank, and T&D, a listed insurance company are eager to beef up their asset management business. The bidding process has reached its most crucial part.

Itochu, Possible Buyer For am/pm

According to Nikkei, Itochu Corp, one of the largest trading companies, started to negotiate with Rex Holdings Co., the parent company of am/pm Japan Co., about the merger of the battered convenience store operator. Lawson, the second largest operator, once reached a basic agreement with Rex Holding Co., but it turned out to be a deadlock after the US parent company of am/pm showed its firm intention of making existing stores use the am/pm trademark. Itochu, who holds a 30% stake in FamilyMart Co., the third largest convenience chain store operator, looks forward to combining the two operators.

In Japan, Seven-Eleven Japan Co. is a dominant player with about 12,000 stores. Lawson follows with 8,600 stores. FamilyMart has 7,400 while am/pm has 1,100. There are a few other players in the field. We will see industry reorganization since the domestic market is considered saturated.

3 Investment Funds To Sell Ex-Kanebo

According to Nikkei, Advantage Partners LLP, MKS Partners and Unison Capital Inc. reached a basic agreement with Hoyu Co., a Nagoya-based hair-dye maker, that they would sell a 60％ stake of Kracie Holdings (Ex-Kanebo), a manufacturer of consumer goods for about 25 billion yen (including its debt of 15 billion yen). Although Kracie has recovered well with the help of those funds, it needs a strategic partner to enter into its next growth stage. Hoyu Co. intends to expand its business from hair product lines to general household items. This club deal took place in January, 2006 and the company is expected to exit in a few years.

Nomura Securities To Create Corp Turnaround Section

According to Nikkei, Nomura Securities Co. will next month establish a new department dedicated to corporate turnaround business, foreseeing further growth in demand for services against the economic downturn. The new section will focus on financial advisory services for ailing companies, helping such clients draw up turnaround plans and raise the funds necessary to restore their operations. It will also provide advice on merger and acquisition deals, debt reduction and asset sales.

The securities industry has paid attention to the Nikko deal and to the Nikkei. Since the Nikkei has stabilized around 10,000 yen, the securities houses can afford to start some new business.

Aderans To End Takeover Defense Measures

Aderans Holding Co. said that its board has decided to scrap its takeover defense measures, per the wishes of leading shareholder Steel Partners. The defensive measures were adopted in 2006 in a battle with Steel Parntners. But since Steel Partners successfully replaced the struggling wigmaker's board over the Unison group at this May's general shareholders meeting, those measures lost their meaning.

Gov't Says Economy Still Harsh But Some Recovery

The Cabinet Office released the monthly economic report (May) yesterday. It says in summary: under deteriorating employment conditions, the Japanese economy is still in a difficult situation. But with inventory adjustment proceeding, stimulus packages and economic conditions overseas picking up, we expect the Japanese economy to hopefully be in the process of recovery. On the other hand, production activity remaining at a low level will make the unemployment rate worse for a while. In addition, we still have concerns regarding the effect of the financial crisis and the direction of the world economy.

The tone of their view was much better than last month.

Daiwa Securities to Buy Davinci REIT manager

According to Nikkei, Daiwa Securities Group Inc, Japan's secound-largest broker, will buy a real estate management unit of KK DaVinci Holdings to expand its property business. Daiwa will also take roughly 13% of DA Office Investment through a private placement of new shares.　Daiwa Securities has been looking for an opportunity to invest in the real estate market as a new business field.

Five in Running to Acquire Nikko Asset

Five companies are in the running to acquire Citigroup Inc.'s Nikko Asset Management unit, according to Nikkei. They are Sumitomo Mitsui Financial Group Inc., Sumitomo Trust & Banking Co., Mizuho Financial Froup Inc., Nomura Holdings Inc. and T&D Holdings Inc., who have reached the second round for bidding for Nikko Asset. Nikko Asset boasted some 9 trillion yen in asset under management at the end of March. Some of them likely offered more than 100 billion yen ($1 billion) for it.

SBI To Launch Investment fund With Malaysia State Fund

SBI Holdings Inc., one of the top Japanese venture firms, said that it will launch an investment fund jointly with Malaysian state-run fund management company Permodalan Nasional Berhad (PNB). The new entity will invest in firms in China, India and ASEAN countries with capital of $50 million. So far SBI has teamed up with a variety of Asian investment groups like KTIC Holdings (Korea), Temasek Holdings (Singapore), and State Bank of India etc.

10-year JGB Hits 8-Month High 1.56%

Japanese government bond yields rose Thursday, with the key 10-year yield hitting 1.56%, the highest since October, after US Treasury yields rose overnight. On the same day the Nikkei briefly touched the psychologically important 10,000 level. Although the yield on 20-year bonds rose 2 basis points to 2.19% and the 30-year yield rose 2.5 basis points to 2.31%, the shorter end held steady; the 2-year bond yield was 0.37% down by 0.5 basis points and the 5-year bond yield was flat at 0.845%. The 5-year auction whose bid-to-cover ratio was 3.09 times, the highest since January. We see good demand for shorter bonds, less for longer.

Japanese Machinery Orders Drops 5.4%

The Cabinet Office reported yesterday that core Japanese machinery orders fell by 5.4% in April. This is much weaker than the market consensus of a 0.4% rise.

The Bank of Japan reported that the country's wholesale price index, as measured by the corporate goods price index, slipped 5.4% in May from a drop of 4% in the same period a year earlier. This is due to cheaper commodities prices and a slump in corporate activity.

Those figures are not showing any turnaround of the economy yet, but economists maintain their view that the economy appears to be over the worst.

Mitsubishi Co Sets Up Reinsurance Investment Fund

Mitsubishi Corp. has established an insurance and investment manager, Pentelia Diamond Capital Management Ltd with Pentelia Capital Management, a leader in the management of insurance linked assets. The company has successfully launched Eolia Diamond Ltd with a total commitment of $132 million. Eolia Diamond Ltd. is an alternative investment fund designed to participate abroad in array of insurance-linked assets such as catastrophe bonds, natural catastrophe property reinsurance, mortality assets, terrorism and aviation reinsurance.

Since this kind of fund could raise more than 100 million, this might be a symptom of Japanese institutional investors coming back.

Restaurants Chains Beef Up Business in Asia

Japanese restaurants chains whose domestic sales have hit the ceiling, turn their eyes to booming markets in Asia. Yoshinoya Holdings Co., will open 50 beef bowl shops in China. Saizeria, a casual Italian restaurant operator, plans to double the numbers of shops in Asia. Watami Co., a pub operator will open around 10 Japanese styled restaurants in Taiwan and Hong Kong.

Domestic-oriented companies like restaurants chains will expand their operations in Asia.

Nikkei Index Hit 8 Month High on Weak Yen

Japan's Nikkei average hit its highest point in eight months on Monday as a weaker yen raised prospects for exporters and the global economic outlook was buoyed by fewer-than-expected US job cuts in May.

Market players said the Nikkei could soon reach the psychological 10,000 yen mark with this momentum going. It is a good surprise since Nikkei has recovered about 40 % since its bottom in March.

Eco-Car Battles Shift Gear

Toyota Motor Corp's Prius hybrid took the top spot in the May ranking of new car sales and Honda's Insight hybrid took third, according to data released by the Japan Automobile Dealers Association.

Mitsubishi Motors Corp began producing the iMiEV at its main plant in Okayama Prefecture, becoming the world's first carmaker to mass-produce a practical electric vehicle for general consumers. Fuji Heavy Industries Ltd will begin deliveries in Japan of its newly-developed electric car from late July. Nissan Motor Co. also aims to release an electric-powered vehicle in 2010.

With government incentives, tax breaks and consumers' predilection for fuel-efficent vehicles, Japanese car-makers are now in the middle of an eco-friendly race.

Japanese Firms Earned Record 36% of Profit From Asia ex Japan

According to Nikkei, listed companies generated a record 36% of their combined operating profit in Asia excluding Japan in the fiscal year ended March 31, up 24 points, this shows a sign of Japan's growing reliance on neighboring markets.

The survey covered 432 companies that disclose group sales and operating profits figures for each region. Domestic operations accounted for 48% of overall operating profits, a drop of about 18%. The companies reported 10-20% decline in sales for all regions due to the global economic downturn. Operating profits plunged 82% in Japan, 96% in Europe and it was red in the US. Meanwhile, operating profits in Asia outside Japan dipped just 28%. Consumption has been relatively solid in emerging Asian markets. Many companies believe that Asia will remain strong and that efforts in this region will affect long-term growth.

Confidence Rises 4th Straight Month at SMEs

The diffusion index of business sentiment at 1,000 small and midsize companies rose 3.3 points to 34.1 in May, according to data released last Wednesday by Shoko Chukin Bank, a government affiliated bank that provides loans to smaller firms. Even though the index has continued to improve from January's record low of 24.8, the May result still fell below the threshold of 50 for the 26th consecutive month. A number above 50 indicates that business conditions are positive, while a reading below 50 suggests they are negative.

Industrial Production Surges 5.2% in April

The Ministry of Economy, Trade and Industry reported last Friday that industrial production in April increased 5.2% from the previous month, this was bigger than the consensus of 3.3%. It was the second straight month of growth. The ministry predicts the industrial production figure is likely to rise 8.8% in May and 2.7% in June and it revised its overall assessment of the category from "remaining stagnant" in March to "signs of recovery can be seen".

This 5.2% month on month rise in April is the highest in 56 years. The sharp recovery also suggests how rapidly the Japanese economy nosedived in the previous months. We are seeing good improvements in car and electronics sectors, while consumer demand remains weak.

Joint Files For Bankruptcy Protection

Japanese apartment developer Joint Corp filed for bankruptcy protection with about a $1.5 billion debt. Joint, which received a capital infusion from Orix Corp last year, seemed to have weathered the sluggish state of the property market.

Before the announcement, shares of Joint were traded at around 215 yen. It was a surprise to players of both equity and real estate markets.

Steel Blocks Unison Bid for Aderans

At Thursday's general meeting, Aderans Holdings Co.'s shareholders voted to accept the board of director candidates proposed by Steel Partners, a US investment fund. They also rejected the wigmaker's own propsal to select candidates from Unison Capital Inc., a domestic investment fund.

Aderans teamed up with Unison Capital to turn around sagging operations. Unison plans to make a TOB contingent on gaining board representation at the shareholders meeting. The wigmaker tried to win support for its board nominations by directly lobbying overseas investors and by having Unison lift its tender offer from 1000 yen to 1200 yen. But such efforts did not attract the support from shareholders, who have been frustrated with the poor performance of the company under current management. After the shareholder voting, Unison abandoned its TOB plan.

Japanese Endowments Also Hit Hard in '08

According to Nikkei, Keio University, which manages 150 billion yen ($1.5billion) in its portfolio, saw paper losses reach 53.5 billion yen as of March 31. Allocating roughly 80% of assets in stocks and investment trusts, it has sought an annual return of 3-4%. Numerous financial instruments held by the university have lost more than half their value in the wake of the financial crisis. Although other universities have not suffered from securities investments as much as Keio, they learned their lessons the hard way.

The roughly 500 entities underlying Japan's four-year universitites manage 9.15 trillion yen($91.5 billion) in assets. With the dwindling number of children, tuition income and government subsidies are bound to decline. Many academic institutions have moved to increase returns on their assets to pay for teaching and research expenditures as well as capital investments.

Unison: Sweetens Tender Offer Price for Aderans

Unison Capital announced that it will lift its tender offer price for battered wigmaker Aderans Holding Co. by 200 yen to 1200 yen a share. Unison Capital and Aderans are locked in a battle with US hedge fund Steel Partners for shareholder votes at Aderans' annual meeting scheduled on the 28th. Steel Partners, Aderans' main shareholder with a 27% stake had once asked other shareholders to reject Unison's earlier offer as too low.

Marunouchi Capital to Acquire 15% of Tomy

Tomy Co. a major toy maker announced that Marunouchi Capital Co., an investment firm established by Mitsubishi Corp and Mitsubishi UFJ Securities Co., Ltd., will purchase 15% of the company for a total of 8.42 billion yen ($ 89 million).

Marunouchi Capital will acquire 10% from TPG, which currently holds 14% of the company, and 5% from Tomy itself to become the largest shareholder, while TPG will purchase 5.6 billion yen ($ 59 million) of a convertible bond issued by Tomy. The toy maker expects to expand its overseas business capitalizing on Mitsubishi's global network.

Marunocuhi Capital launched its first fund in May 2008 with a commitment from Mitsubishi Corp, The Bank of Tokyo-Mitsubishi UFJ Ltd and Mitsubishi UFJ Securities Co.. With a total commitment of 100 billion yen ($1.05 billion), Marunouchi Capital Fund 1 is one of the largest among Japanese funds.

Lawson Drops Bid For am/pm Japan

Lawson Inc., the 2nd largest convenience store chain operator said it has abandoned its 14.5 billion yen ($145 million) plan to acquire smaller rival chain am/pm Japan Co. Lawson Inc. announced in March that it had agreed with REX Holdings Inc. to acquire all shares of its subsidiary, am/pm Japan Co., Ltd.

But the deal fell apart because Lawson did not accept the condition by the US owner of the am/pm brand am/pm international, that 700 stores in the group continue to use the am/pm name after the acquisition. The $145 million deal would have helped Lawson catch up with the industry leader Seven-Eleven, a unit of Seven & I Holdings.

Merrill Reports Sharp Turnaround in Investor Sentiment

According to the May Merrill Lynch & Co.'s global fund manager survey, sentiment towards the global economy has completed a sharp turnaround from October 2008, when a net 60 percent of investors forecasted a worsening outlook. In May’s survey, a net 57 percent say the economy will improve over the next 12 months, up from 26 percent in April. Investors have moved to a net underweight position in bonds for the first time since last August. Many are rushing to emerging markets. A record net 40 percent of fund managers are looking to overweigh the region in the next 12 months.

The survey also revealed that the number of investors underweighing Japan is decreasing. Nikkei reported foreign investors turned to net buyers in April for the first time in eight months.

Cosmos Initia Secures JPY 11 billion Bridge Loan

Further to our article on May 7 regarding Cosmos Initia Co. (8844), it was reported today that the condominium marketer secured 11 billion yen (USD 115 million) in bridge loans from Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corp., Mizuho Corporate Bank and Sumitomo Trust & Banking Co. The financing was approved by lenders who attended the first meeting of debtors-in-possession on April 28. Cosmos Initial is Unison Capital's portfolio company and is pursuing reorganization under an alternative dispute resolution mechanism.

Macquarie to sell Japan Airport Terminal shares

Japan Airport Terminal Co.'s (9706) stock rebounded today, after The Nikkei reported that the firm is looking to repurchase 21.9% of its outstanding shares (worth approximately USD 220 million), including the 19.9% stake held by Macquarie Group Ltd. of Australia. The TOB price of 1,000 yen is at a slight premium to the May 19th closing of 956 yen, but at a discount to the past 3 months average. Macquarie began buying the terminal operator's shares in 2007, prompting the Japanese government to consider the possibility of restricting foreign investment in airport-related companies. The share price peaked at 2840 yen in August 2007 and Macquarie's holding cost is reportedly at 2,289 yen per share.

Earlier this month, Macquarie Group reported AUD 2.5 billion (USD 1.8 billion) loss from the investments in real estate and infrastructure, though it still maintained an AUD 870 million (USD 650 million) profit for FY 2008 (ending March 2008).

Q1 2009 GDP - 4% on Quarter or -15.2% Annualized

Japan's real GDP fell 4.0% in Q1 2009 from the previous three months, Cabinet Office data showed. The decrease translates into -15.2% on an annualized basis. This is the sharpest quarterly fall since 1955 and marks the first-ever four-quarter run of declines. The Government also revised down figures for Q4 2008. GDP in that quarter fell 3.8% from the previous three months, or an annualized 14.4%, rather than sliding 3.2% on a quarter, or an annualized 12.1%, the data showed.

With these, the real GDP growth for FY 2008 (12 months ending March 2009) fell to -3.5%.

The decline comes as business and consumer spending fell sharply along with exports. However, the May analyst survey shows 37 economists on average expect +1.1 % growth (annualized basis) for Q2 2009, suggesting that the economy has probably bottomed out in Q1 2009. The same economists projected -1.5 % growth for Q2 2009 in the last survey conducted in April.

T&D To Join Bidders For Nikko Asset

T&D Holding Inc, the parent company of Taiyo Life and Daido Life, has bid for Nikko Asset Management Co.(Aum:$90 billion), Citigroup's fund management arm in Japan, offering more than $1.05 billion, according to the Nikkei. The T&D group has been aiming to expand its asset management business in the past few years. Sumitomo Mitsui Financial Group and Nomura Holdings Inc group are said to be among other bidders.

Fuji Media To Launch Tender Offer for Cecile

Fuji Media Holdings Inc, a media conglomerate, announced that it will make a tender offer for shares of Cecile Co., one of the listed mail-order sales companies. The major shareholder of Cecile, LDH Corp. (former Livedoor Co.,) said in a separate release that it agreed to the tender offer by Fuji Media.

Fuji Media intends to beef up its mail-order business through this M&A.

Who is Doing Well in Japan Today?

1 out of 7 companies saw both profits and sales rise last fiscal year, according to calculations by The Nikkei. The key words are "saving", "healing" and "caring". Here are some examples:

Benesse Corp. (9783), a correspondence school, logged a 9% year-on-year jump in pretax profit to 39.2 billion yen. The company benefited from a trend to switch to affordable correspondence courses away from expensive cram schools.

Nihon Shokuhin Kako Co. (2892) grew 16-fold to 3.6 billion yen from the popularity of low-malt beers, which are cheaper than regular beers. The company supplies ingredients to brewers.

Gourmet Navigator Inc. (2440) enjoyed a 45% surge to 3.9 billion yen. The company operates a Web site offering information on restaurants, enabling users to search for quality but affordable places.

Nintendo Co. (7974) recorded a 2% uptick in pretax profit to 448.6 billion yen on the back of growing global sales. As consumers cut back outside excursions, gaming devices that enable users to play and study at home flourish. Hosiden Corp. (6804), which supplies parts for Nintendo game systems, along with software developers Capcom Co. (9697) and Hudson Soft Co. (4822), also fared well.

Unicharm PetCare Corp. (2059), a pet food maker, saw its pretax profit zoom up 31% to 6 billion yen, buoyed by beefed up offerings for aging and obese pets.

Sawai Pharmaceutical Co. (4555) had its pretax profit soar 31% to 4.4 billion yen thanks to increased demands for generic medicine.

Hogy Medical Co. (3593) saw sales of kits containing surgical gowns, scalpels and other items gain more than 10%, lifting its pretax profit 5% to 7.6 billion yen. There was an increased demand from domestic medical institutions aiming to improve efficiency.

1 Out of 3 Listed Companies Reported Losses

According to the Nikkei, 1 out of 3 listed companies reported losses for fiscal 2008. Of the 1,533 listed firms (excluding financials and start-ups) that close their books in March, 552 reported net losses for fiscal 2008. it compares to 177 companies in red for fiscal 2007, and 502 companies in red for fiscal 2001.

The high 2008 tally is partially attributed to firms bringing forward the booking of restructuring costs. Of the 552 companies, 217 companies would have kept themselves in black had they not booked a large one-time expense.

The largest losses were reported by Hitachi (USD 8 bn), Toyota (USD 5.5 bn), Panasonic (USD 4 bn), Toshiba (USD 3.5 bn), Dai-ichi Sankyo (USD 3.5 bn), NEC (USD 3bn) and Nippon Oil (USD 2.5 bn). Dai-ichi Sankyo was very severely hurt by its 2008 acquisition of India's top drug maker, Ranbaxy.

Material Shipments to China Soar

While total exports in March fell by 45% year on year, Japan's exports of industrial materials are showing a strong recovery, thanks to rising demand from China and other Asian economies. According to the Nikkei Daily, March exports of low-density polyethylene for packaging materials leaped 120% year on year, while shipments of polypropylene expanded 74%. Shipments of used paper and iron scrap are up 67% and 58% respectively, both reaching their all-time highs. Japan's exports of construction-use materials, such as steel bars and cement, to South Korea and Southeast Asian countries are also increasing.

Approximately 40% of Japanese exports are shipped to Asian countries with China being Japan's largest trading partner in recent years.

JAIC In Third-Party Restructuring Process

Japan Asia Investment Co.(JAIC), a major venture capital firm, said it will adopt an alternative dispute resolution (ADR) in negotiating with over 50 financial institutions to extend its repayment terms of an interests-bearing debt. This scheme is the same as the one selected by Cosmos Initia.

JAIC recorded a net loss of 35 billion yen in fiscal 2008. The company is saddled with about a 46 billion yen debt.

JAIC is one of a few listed VC firms not belonging to any financial groups. This time, being independent put the company into a corner.

Ant Global: Sold Bookoff Shares to Strategic Buyers

Ant DBJ Investment and Ant Global Partners Japan Strategic Fund 1 LP, both top shareholders of Bookoff Corp. sold their holdings to a consortium of 6 companies. Dai Nippon Printing and its 2 subsidiaries will acquire 16% while 3 major publishers (Kodansha Ltd., Shogakukan Inc. and Shueisha Inc.) will acquire another 13% of the company. Bookoff is the leading retailer of second-hand books, CDs, DVDs and video games with some 900 retail networks throughout Japan. Its sales in FY 2008 was approx. USD 500 million. The announcement caused the share price to soar from below 750 yen to 900 yen. At today's close, Bookoff's market cap stands at USD 180 million. The Ant group purchased shares of Bookoff at 825 yen in March 2008.

MUFG To Acquire $705 mn in Morgan Stanley Stock

Mitsubishi UFJ Financial Group Inc. said that it will acquire $705 million worth of Morgan Stanley common shares, bringing its stake in the US investment bank to over 20%. As Morgan Stanley will redeem its $705 million of non-convertible preferred shares, MUFG will not need to pay additional cash for the purchase.

With the rival Sumitomo Mitsui Financial Group acquiring Nikko CordialSecurities from Citi, MUFG intends to strengthen its investment banking business through enforcing a strategic alliance with Morgan Stanley.

Unison : Steel Partners Ready For Proxy Fight Over Aderans

In their official letter to all shareholders, US Investment Fund Steel Partners urged Aderans' shareholders to vote against Aderans' board slate at the 2009 general shareholders' meeting and to reject Unison's tender offer and dilutive sale of Treasury shares. Steel Partners stated that Unison's tender offer was inadequate, coercive, and damaging to existing shareholders. Now a proxy fight is inevitable.

Since the average cost of shares held by Steel Partners is said to be around 2700 yen、it is unlikely they will compromise with Unison's 1000 yen TOB price. Additionally, this TOB is irregular in that Unison will make a TOB after various proposals are approved at the Aderans' general shareholders' meeting. It is usually vice versa.

So this is a proxy fight with one player attracting shareholders via a "TOB".

Majority of Listed Regional Banks in Red for FY08

According to the Nikkei news, at least 48 of the 87 listed regional banks are expected to post net losses for the financial year which ended on March 31st. This will be the first time that more than half of the regional banks will awash in red ink. These banks suffered mainly from write-downs of marketable securities like stocks and foreign bonds in addition to bad domestic loans.

Feeling the necessity of increasing capital, some banks are tapping the market while others are turning to the government for help.

Sumitomo Mitsui to Aquire Orix Card Unit

Sumitomo Mitsui Financial Group(SMFG) and Orix Corp. agreed that SMBC will acquire a 51% stake in Orix Card Corp.(OCC) by July 2009. OCC will become a consolidated subsidiary of SMBC while Orix will continue to hold the remaining 49%.

These days SMBC has aggressively strengthened its strategic businesses through M&As.

Unison Capital; Cosmos Initia Turnaround via ADR

Major condominium developer Cosmos Initia Co. is attempting to save itself through an ADR (alternative dispute resolution). ADR is an unconventional third-party restructuring process mediated by the Japan Association of Turnaround Professionals (JATP), an ADR institution certified by the government under a special law for industrial revitalization.

Formerly known as Recruit Cosmos Co., Cosmos Initia left the Recruit Co. group in 2005 through a management buyout. Presently, investment fund Unison Capital Inc. holds the leading stake in the company.

With the condo. market in a slump, Cosmos Initia fell into a negative net worth of 52.7 billion yen in fiscal 2008. The company is also saddled with about 200 billion yen in debt. Under the plan, it hopes to slash about half of its debt.

Taking responsibility for the company's current financial situation, Satoshi Shigeta will step down as chairman. The company is also considering cutting payroll and asking Unison for gratuitous transfer of his shares.

SMFG Agrees to Buy Nikko Cordial Securities From Citigroup

Sumitomo Mitsui Financial Group and Citigroup said Friday that they have reached an agreement in which SMFG will acquire most of Citigroup's Japanese brokerage operations effective October 1st. SMFG will buy retail brokerage Nikko Cordial Securities and some operations of wholesale investment bank Nikko Citigroup for about $5.6 billion. SMFG also said it has agreed with Citi to form an alliance in corporate and investment banking, including mergers & acquisitions, sales, and trading services.

While SMFG already has wholesale investment banking operation Daiwa Securities SMBC, it is a bit of surprise that this Nikko deal included not only Nikko Cordial but also Nikko Citi. SMFG reportedly intends to consolidate the two Nikko operations.

When Citi announced its intention to sell its subsidiary this January, most of the industry thought Nikko Cordial's destination would be its "old home" Mitsubishi. Now Citi's forced sale seems to have triggered a large industry shake-up with a possible future merger between Daiwa and Nikko. This merger is what the No.1 brokerage house Nomura is most afraid of.

Renown Avoids Proxy Battle with Top Shareholder

Renown Inc, a major apparel maker, reached an agreement with Neoline Capital by giving up a seat on its board to the top shareholder. At one time, Neoline capital proposed assigning three executives to Renown's board and keeping Nakamura, the current CEO, at his post.

In avoiding the proxy fight, Renown will have a young top management team represented by the next CEO, 47 year old Kitabatake, and two other executives in their forties.

Daiwa Sec To Launch a Tender Offer For Daiwa SMBC Capital

Daiwa Securities Group has announced that it will launch a tender offer for Daiwa SMBC Capital (formally NIF SMBC Ventures). The offering price is 563 yen per share, which is 30% higher than the average closing prices from the previous one month period. Daiwa SMBC Capital, a venture capital and buyout investment firm said in a separate announcement that it has agreed to the tender offer.Daiwa Securities Group currently holds a 46.2% stake in Daiwa SMBC Capital. The second major shareholder, Sumitomo Mitsui Banking Corporation, holds a 40% stake in the company. If the transaction is successful, Daiwa SMBC Capital will be delisted from the Tokyo Stock Exchange.

Shinsei and Aozora in Merger Talks

Shinsei Bank, the nation's 7th largest bank and Aozora bank, the 8th largest bank have entered into negotiations to integrate their operations in the summer of 2010, according to Nikkei.

The two banks are owned mainly by US hedge funds J.C. Flowers & Co., which has a stake of about 33% in Shinsei, and Cerberus Group which has an interest of around 45% in Aozora.

We expect more consolidation in the Japanese financial industry.

SMFG Wins Nikko Cordial Deal

Sumitomo Mitsui Financial Group (SMFG) has been granted preferential negotiating rights for Citigroup Inc's Japanese retail brokerage operations, prevailing over its two rival Japanese banks.

Citigroup and SMFG will negotiate the terms of the deal, with hopes of closing within the next few weeks.

Now the market is focusing on how SMFG will handle Daiwa Securities Group, which jointly operates wholesale brokerage house Daiwa Securities SMBC.

Japanese Mega Banks Deeply in the Red for 2008

According to the financial daily Nikkei, Mizuho Financial Group Inc. announced that it expects to post a 580 billion yen net loss due to mounting credit costs as well as investment losses in Merril Lynch & Co.

Sumitomo Mitsui Financial Group also announced a projected net loss of 390 billion yen, blaming rising credit costs and investment losses from Barclays PLC's.

These companies are dragging down investments in foreign financial institutions.

CLSA to Launch $500mn Japan Fund

CLSA Capital Partners is gearing up to raise its second Japan-focused buyout fund with a $500 million target. Its first Japan focused fund was closed in 2006 with capital commitments totaling $350 million. The fund has made investments in 5 Japanese companies. The private equity investment arm of CLSA focuses on mid cap companies which rely on domestic demand.
CLSA Capital Partners stands tall, while a few other foreign buyout firms are closing their Japan branched.

Honda Seen Beating Outlook On Weak Yen, China Sales

The Nikkei reported that Honda Motor Co.'s group operating profit for the year ended March 31 is likely to come in about 10 billion higher than the company previously forcast thanks to a weaker yen and better-than-expected sales in China in the 1Q of 09.

Japan astounded the world with the news that Japan recorded a -14.9% GDP (annualized rate) in 4Q of 08. Since Japanese banks had not invested much in subprime-issued papers, people thought that the Japanese economy would fare better than other developed countries. In fact, Japan fared worse. But on the bright side, since Japanese companies responded the worldwide crisis first they should be the first to take off when the world economy comes back.

Matsushima Industry To Launch A Tender Offer For Shinagawa Tatemono

Shinagawa Soko Tatemono, a real estate and warehousing company, announced that it will accept a tender offer from Matsushima Industry, a Miyagi-based stone material company. The tender offer price is 185 yen which is 10% higher than the average closing price of the previous month.

Shinagawa Soko Tatemono has been looking for a partner as well as a sponsor due to multiple concerns - including aging management, necessity for renewals of leasing buildings, and the increasing cost of staying on the stock exchange.

The company will be de-listed from the JASDAQ upon completion of the deal.

Renown Announces Resignation of All 5 Directors

Renown Inc, one of Japan's major apparel makers, has announced that all of its 5 board members will resign and the company will appoint a 47-year old planning department manager as its new president under a new restructuring plan.

The decision is aimed at ducking a proposal from Neoline Capital Co., the firm's biggest shareholder, to send three executives to the apparel maker's board to maintain initaitive in rebuilding its ailing operation. Neoline Capital, a consumer finance company and an investment fund operator, holds a leading stake of roughly 25% in the apparel maker.

Renown will seek to have the plan endorsed during its May 28 general shareholders meeting.