Aozora Bank, Majority-Owned By Cerberus, Pushes Back Government's Preferred Shares Conversion Deadline By 10 Years

On Monday 27th, Aozora Bank Ltd., the successor institution to failed Nippon Credit Bank majority-owned by Cerberus Capital Management LP, said it has agreed with the Japanese government to repay public funds in installments over the next decade. It will make an initial upfront payment to the government of JPY 22.7 billion (USD 288 million) and then pay it JPY 20.49 billion annually until 2022.　

When the government injected public funds into the bank in 1999 and 2000, the state received convertible preferred shares worth JPY 320 billion (USD 4.1 billion), of which JPY 180 billion worth remain outstanding.

This deal pushes back the mandatory conversion of the government's preferred shares until 2022. One tranche of the preferred shares was due for conversion in October.

To generate funds for the repayment, Aozora plans to reduce its capital base from JPY 420 billion (USD 5.4 billion) to JPY 100 billion. Aozora will also buy back 330 million shares, or about a fifth of shares issued, and boost its dividend payout from 30% to 40% of earnings, one of the highest ratios among Japanese banks.

The plan is subject to the approval of shareholders at an extraordinary meeting on Sept. 27.

Aozora Bank shares jumped 20% at the news as the retail investors welcomed the proposal for share buybacks and dividend payout ratio increase.

Daikin To Buy Goodman From Hellman & Friedman for USD 3.8 Billion

Daikin Industries Ltd. (6367) will acquire Goodman Global Inc., the leading manufacturer of home air conditioners in the U.S., for roughly JPY 296 billion (USD 3.8 billion) from Hellman & Friedman LLC. The acquisition would be one of the largest yet this year by a Japanese manufacturer.

Daikin's air conditioning segment rang up sales of JPY 1.04 trillion (USD 13.2 billion) in fiscal 2011, making the firm No. 1 in the global market. With Goodman's sales, the sales will increase to JPY 1.2 trillion (USD 15.2 billion). 

Back in the spring of 2010, Daikin launched talks to acquire the U.S. firm in a deal that could have cost as much as JPY 350 billion. The negotiation was halted after the March 2011 earthquake. Daikin apparently restarted the talks aided by a strong JPY currency and urged by increased competition from Chinese manufacturers.

Currently Daikin shares are trading at 5.5 % below the yesterday's closing price.

KKR To Invest USD 1.27 Billion To Take Over Renesas Electronics

The Nikkei reported this morning that Kohlberg Kravis Roberts & Co. has decided to take over management of Renesas Electronics Corp. (6723) by spending JPY 100 billion (USD 1.27 billion) to acquire new shares from the struggling chipmaker.

KKR has presented its proposal to Renesas' three major shareholders, NEC Corp. (6701), Hitachi Ltd. (6501) and Mitsubishi Electric Corp. (6503), as well as the chipmaker's main banks. It hopes to reach a formal agreement as early as next month and to own a majority stake of the company by December.

Renesas has a market capitalization of about JPY 95 billion (USD 1.21 billion) . By seeking more than 5,000 voluntary early retirements and closing down some facilities, it expects to report an extraordinary loss of 150 billion yen for the current fiscal year. Renesas also plans to eliminate up to 14,000 jobs (roughly 30% of its workforce) and shut or sell nine domestic plants within three years.

NEC, Hitachi and Mitsubishi Electric have already agreed to provide a total of JY 50 billion (USD 630 million) through loans and other measures and 4 major banks are prepared to lend up to JPY 50 billion (USD 630 million) in total.

According to the Nikkei report, Renesas had requested that KKR spend JPY 50 billion (USD 630 million) on a private placement of new shares. But KKR apparently determined that it needs to take management control for a quicker restructuring and KKR may replace Renesas' management if the US fund becomes unsatisfied with the restructuring progress.

The news sent Renesas shares more than 30% higher this morning.

Sharp Divestments Will Provide Opportunities For PE Funds

Sharp Corp. (6753) reportedly plans to sell its information equipment business (copiers etc., JPY 277.5 billion / USD 3.5 billion in sales), electronic devices business (LED lighting etc., JPY181.2 billion / USD 2.3 billion in sales) and air conditioning equipment business (JPY 53.5 billion /USD 0.7 billion in sales).

Sharp may also invited a JV partner to operate its main plant in Kameyama, which makes LCD panels for Apple. It may also have other firms operate its TV assembly plant in Mexico and solar cell production facilities. It will sell its 0.6% stake in Olympus (7733) and possibly its 9.8% interest in lithium ion battery joint venture Eliiy Power Co.

Kyocera (6971), Daiwa House (1925) and Daikin Industries (6367) are among the firms to have reportedly expressed interest in buying them. According to our source, a few private equity firms have been in contact with Sharp.

Bracing for a huge net loss this fiscal year, Sharp seeks to get back on its feet by focusing on such fields as LCDs, mobile phones and white goods. With about JPY 200 billion (USD 2.5 billion)  in convertible bonds set to mature in autumn of next year, Sharp is in need of cash.

Japan Airlines to Be Re-listed, Bringing a Profit to ETIC

Japan Airlines Co. will be re-listed on the Tokyo Stock Exchange on 19 September 2012.

JAL filed for a bankruptcy on 19 January 2010 and received capital injection of JPY 350 billion (USD 4.5 billion) from the state-backed Enterprise Turnaround Initiative Corp. of Japan (ETIC). Having wiped out all of the shareholder equity 2.5 years ago, JAL has engaged in substantial corporate restructuring - reducing its flight routes and employees by 40% and cutting pension obligations and the number of subsidiaries by a half. It reported JPY 200 billion (USD 2.5 billion) operating profit in FY 2012.

ETIC, which owns approx. 96% of the carrier, will be selling its entire holdings at the listing. While the actual offering price will be set on 10 September, EITC would nearly double its investments if the price is set at JPY 3790, as reported by a media.

Banks to Be Allowed to Hold More Than 5% of Non-Financial Companies

The Financial Services Agency plans to relax the rule limiting bank stakes in non-financial companies to 5%, The Nikkei reported. By lifting the cap on ownership to 10-20%, the FSA hopes to nudge banks, particularly regional financial institutions, into helping struggling companies get back on their feet. If regional banks become able to provide more capital in addition to loans, it would stabilize smaller businesses' cash flows and could spark fresh capital investment. There have been calls within the ruling Democratic Party of Japan to relax the rule to encourage the growth of local economies.

INCJ to Invest JPY 10 Billion in Lithium Ion Battery JV

The Innovation Network Corp. of Japan will invest JPY 10 billion (USD 125 million) in a joint venture with Kureha Corp. (4023), Kuraray Co. (3405) and Itochu Corp. (8001) to mass-produce a cutting-edge lithium ion battery material at home and abroad. The 3 strategic partners will jointly contribute JPY 10 billion to the JV. Kureha and Kuraray have established processes to produce plant-derived material to be used in battery electrodes that can halve the time required to charge electric and plug-in hybrid vehicles, as well as improve battery durability by as much as 30%.

Polaris III First Close with JPY 20 Billion

Polaris Capital Group has announced that its 3rd fund had the first closing on July 11th with approximately JPY 20 billion (USD 250 million) commitments from investors. Polaris III aims to raise between JPY 30 to 40 billion. According to the press release, Polaris I has realized almost two-thirds of investments and expects to achieve full exits in a couple of months. Polaris II is now fully invested.

http://www.polaris-cg.com/topics/20120730-E.pdf

Polaris to Acquire a 30% Stake in Myland

Polaris Capital Group will acquire a 30% stake in Myland Real Estate Co. by investing in slightly over JPY 2 billion (USD 25 million) through a private placement. Myland buys existing homes, renovates and sells them to first-time home buyers. It has agencies in 46 of Japan's 47 prefectures and takes in about JPY 30 billion (USD 375 million) in annual sales. According to the Nikkei report, Myland aims to go public in a few years working with Polaris. Myland is the 3rd investment for Polaris in the past 12 months, while it sold the holdings in 3 other portfolio companies during the same period.

Defta Partners to Establish a Japan-focused VC Fund

Defta Partners will establish a VC fund focusing on telecom, healthcare, environments and energy sectors through its Japanese subsidiary, Defta Capital. The fund size will be between JPY 2 - 3 billion (USD 25 - 37 million). Defta Capital will be moving its HQ from to Tokyo to Yokohama in Kanagawa Pref.  Kanagawa Pref. has been implementing policy measures to support venture companies to facilitate their growth.

Japan Buyout Monthly June 2012

is out now.

If you would like to receive our monthly letter, please click the link in the right box or kindly send email to:
mail@brightrust.jp with your name (Mr/Ms/Dr), company name/address/website.

FT: Corporate Japan Back on Track

A good summary of overseas M&As by Japanese corporations - historical and current - by FT.

http://on.ft.com/LH7Dq1

Open Door To Foreign Property Acquisitions By Japanese REITs

A bill to allow to Japanese listed REITs to own a majority stake of foreign real estate special-purpose companies will be submitted to the Diet next year. Currently REITs cannot own majority stakes in firms. The revisions would make an exception for overseas SPCs, which would practically open the door to foreign property acquisitions by Japanese REITs. Japanese REITs' total market capitalization has shrunk to around 3.5 trillion yen (44 billion dollars) , down from nearly 7 trillion yen (88 billion dollars) in 2007.

Unison And RJH Prepare For Exits

According to Mergermarket, Unison Capital is in the process of divesting Akindo Sushiro and UCOM and RJH is looking for a buyer for its portfolio company, Shaklee Japan.
Unison invested in Akindo Sushiro in September 2007 and took the operator of conveyor belt sushi chains private through TOB in 2008. Unison invested in UCOM, an operator of fiber-optic communications, in Mar 2007 and have done a few add-on investments. RJH bought Shaklee Japan in 2004.

Japan to Set Up A Fund To Support PFI Projects

A bill to establish a government-sponsored fund that will invest in, or lend to, PFI projects in renewable energy and infrastructure is being discussed at the Japanese diet. Once the bill is approved, the Government will seed the fund with 5 billion yen (60 million dollars) and invite private companies to add up capital. Going forward, the Government will provide loan guarantees and additional capital to enable the fund to cope with much larger financing requirements. This fund could have a similar structure as Innovation Network Corporation of Japan, which now has as much as 24 billion dollar investment capacity. According to a press, the Ministry of Land, Infrastructure, Transport and Tourism plans to sell management rights of Japanese airports, such as Sendai and Kansai.

INCJ to Buy 42% of Nistica from Fujikura

The Innovation Network of Corporation of Japan (INCJ) announced that it will acquire 42% of Nistica, a US-based company that supplies wavelength selective switches to network equipment manufacturers, from Fujikura Ltd. Fujikura has been investing in Nistica since 2007 and had acquired the majority in April 2012. Fujikura will continue its 52% ownership alongside with INCJ (42%) and NTT Electronics Corp (6%).  The transaction value was not disclosed.

Consolidation In Consumer Electronics Retailer Industry

Yamada Denki Co., Japan's top consumer electronics retailer, will acquire its smaller peer Best Denki Co.. This will lift its annual sales above 2 trillion yen (25 billion dollars). Best Denki, now the No. 8 player, once led the industry, but the acquisition of Sakuraya Co. in 2006 and other missteps have led to its decline.
Bic Camera Inc. just last month converted 7th-ranked Kojima Co. into a subsidiary and rose to the 2nd-biggest consumer electronics retailer in Japan from its previous perch at No. 5. This has left Best Denki looking for a new partner in the increasingly competitive market.

Japan's May Current Account Surplus Narrowed

Japan's current account surplus was 215.1 billion yen in May. It narrowed 62.6% from a year earlier and was much smaller than economists expectation of 511 billion yen. The trade and service balance posted a deficit of 941 billion yen (yes, Japan's trade balance has been in deficit since 2011) as the result of increased LNG imports and decreased exports to Europe. Income surplus, though fell by 11.7% to 1, 274 billion yen, still more than offsets trade balance deficit.

Mori Trust President To Set Up An Investment Company

Nikkei reported that Mori Trust president, Mr. Mori, will set up an investment company which will invest in Japanese and non-Japanese companies to help them expand business locally and globally. Mr. Mori will capitalize the company with 16 billion yen (USD 200 million). Not much details are available at this point.

Goldman To Launch A Private REIT Targeting At JPY 300 Billion

According to a Bloomberg report, Goldman Sachs Group Inc. plans to expand its new private real estate investment trust to as much as 300 billion yen ($3.7 billion) to buy Japanese properties, as it foresees a turnaround in prices. GS aims to launch a private REIT, a product recently introduced in Japan, with the initial target of 30 billion yen in this August. Mitsubishi Estate Co., Mitsui Fudosan Co. and Nomura Real Estate Holdings Inc. have set up private REITs in the past 12 months. According to a Hong Kong-based S&P professional cited in the Bloomberg article, “Japan is in a different cycle compared with other markets in Asia-Pacific.The other markets are coming off from a cyclical top so they are well under way for correction. Japan has been in correction for some time now, so it’s on its way for a recovery.”

J-REITs account for 8.3 trillion yen of Japan’s 23.2 trillion real estate investment market, while private equity real estate funds represents the rest ( =15 trillion yen). The size of private REIT market, however, is estimated to be less than $2 billion.


Japan’s $3.36 trillion in pension money is the world’s second-largest after the US. According to Towers Watson, Japanese pensions have 31 percent of investments in equities and 59 percent in bonds, with only 6 percent in alternative assets.