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.