• Abstract and Figures
• Public Full-text

CENTER ON JAPANESE ECONOMY AND BUSINESS PROGRAM ON ALTERNATIVE INVESTMENTS RESTRUCTURING DISTRESSED COMPANIES IN JAPAN he Program on Alternative Investments, under the aegis of the Center on Japanese T Economy and Business and in cooperation with the Center for Japanese Legal Studies and the Japan Business Association of Columbia University, presented “Restructuring Distressed Companies in Japan” on November 20, 2003. The symposium featured Richard A. Gitlin, Chairman of Gitlin & Company; and William Seidman, Chief Commentator of CNBC and former Chairman of the Federal Deposit Insurance Company (FDIC) as well as former Chairman of the Resolution Trust Company (RTC). Commenting were Curtis Milhaupt, Fuyo Professor of Law at Columbia School of Law, who also serves as Director of the Center for Japanese Legal Studies; and Robert Fallon, currently a professional fellow at the Center on Japanese Economy and Business. Professor Hugh Patrick, Director of the Center on Japanese Economy and Business, moderated the discussion. Mr. Gitlin began with an analysis of the sys- temic structure, policies, and reservoir of political will necessary for successfully restructuring distressed companies in Japan. He discussed the three factors in light of recent developments, arguing there is reason to be more optimistic about the process of corporate restructuring in the near future. Other panelists were more cautiously optimistic, agreeing that there had been a number of favorable changes in Japan’s institutions and policies of corporate restructuring. Mr. Seidman enumerated several stumbling blocks, linking current institutional problems to those that confronted prior reforms. Curtis Milhaupt cautioned that microeconomic factors affecting restructuring are not as favorable as the new institutional framework for restructuring. Mr. Fallon recounted his own experience in restructuring as a practitioner with an American financial concern working in Japan. Excerpts of the discussion are presented in this report, together with portions of the ensuing Q & A period. The Program on Alternative Investments analyzes several major alternative asset classes—including hedge fund, private equity, and real estate—in Japan and elsewhere in East Asia. The Program meets its substantive goals through a combination of research projects and seminar presentations by leading practitioners in each of the alternative asset classes, under the direction of Dr. Mark Mason. For a schedule of upcoming seminars and other Program activities, consult the Program’s Web site at http://www.gsb.columbia.edu/japan/alternatives. Dr. Mason can be contacted by e-mail at [email protected]. Lead Sponsors: Nomura Securities Co., Ltd.; Daido Life Insurance Company 2 Center on Japanese Economy and Business Program on Alternative Investments Alternative Investments Report Restructuring Distressed Companies in Japan 3 It does not matter if there are policies and it does not matter if the system is in place. If there is no political will in a country RESTRUCTURING to make it happen, it does not happen. —Richard Gitlin DISTRESSED COMPANIES IN JAPAN November 20, 2003 Panelists from left to right: Curtis Milhaupt, Robert Fallon, Richard Gitlin, William Seidman, and Hugh Patrick Prospects and Problems of I believe those three components every time a big case was filed, The second factor is the Financial going to change your top manage- Restructuring have come together in Japan, not an independent trustee had to be Supervisory Agency. The FSA, which ment.” Recently, they asked the RICHARD GITLIN perfectly, but enough to ignite the appointed. Sometimes that is not the is the bank regulatory body, has banks to provide more detailed Chairman of Gitlin & Company process of corporate restructuring in best thing. Sometimes you want to tightened its approach to banks. information on their deferred tax What signs should you look for to Japan, and I would like to tell you keep the management, particularly if Over the years, all of us have been asset, which is an asset that all of make a determination that a country why. they were not at fault. They modified very frustrated that the FSA has not us question as support for capital is ready to fix its banks and corpora- that now, so they can appoint the been as hard as we would like in its in the banks in Japan, an act that There are eight factors. The first is tions that are in trouble? I have found management as trustee—a very inspections and its demands to see clearly sets the target of putting the legal infrastructure. Japan has that it happens in a country when three significant development. that the banks wrote down their non- much more pressure on the banks put in place one of the best legal things converge. The first is the law. performing loans (NPLs) to an appro- on that particular issue. infrastructures in the world to sup- In Japan, there are very reliable The fundamental question is, is there priate value and set strategies to port corporate restructuring. The courts, good judges, and a good I had been told by the FSA that they a system in place adequate to support make profits. This last year, the FSA law they put in place for corporate group of professionals, albeit too were going to tighten their special restructuring? The second is policy: issued an order that the banks have rehabilitation in April 2003 (the Civil small a group of professionals. inspections about six weeks ago. are there policies in place that unify to reduce their NPLs by 50 percent Rehabilitation Law) is modeled after Fundamentally, however, they do They just announced the results of the actions of the bureaucracy, that the by 2005. I met with some of the our Chapter 11, but it is designed not use the system well yet because the last special inspection. They bureaucracy can understand and make banks recently. They are taking that for Japan. It is practical and it works. they started too late. By the time they looked at 161 companies—24 were clear what they are trying to achieve? quite seriously. The FSA has also Thousands of cases have been start, most of the value is squeezed downgraded from the position they The third, and probably the most issued an order to the 15 banks that conducted under that law since it out of the companies. However, were in six months before. The FSA important, is political will. It does not got funds from the government that was adopted. The Corporate Reorg- there is now a system in place in did what it said it was going to do. matter if there are policies and it does says, “First, you have to tell us what anization Law was also modified. Japan that can support corporate not matter if the system is in place. If profits you’re going to make and we The third factor is the IRCJ (Industrial That is a law for big cases, and what restructuring and support it quite there is no political will in a country must pass judgment on that plan, and Rehabilitation Corporation of Japan), happened in the old days was that well. to make it happen, it does not happen. if you don’t make those profits, we’re which has US$83 billion to buy 4 Center on Japanese Economy and Business Program on Alternative Investments Alternative Investments Report Restructuring Distressed Companies in Japan 5 minority bank debt and help fix Fifth, foreign strategic and international viable companies. In the first four investors have focused on Japan. cases of the IRCJ, they did valuations If you watch the Resona situation, that caused many banks to signifi- when the government came in and cantly write down the value of their put money in Resona Bank, the stock I do believe we are no longer talking about the direction, but the debt over and above their reserve market went up in value. I believe pace of change. —Richard Gitlin value. There was good news and bad the value increases of the banks and news. The good news is it is the first the banking system, as a result of the time an independent government stock market increase, far exceeded agency has done a valuation in com- the amount of money the govern- Richard Gitlin parison to what the banks had been ment put in to fix Resona. doing in valuation. The bad news for You can argue whether or not you is both a thought leader and an Japan has mustered the political I thought that one sentence from agement expert. A year ago, no one the IRCJ is that they need the banks should leave stockholders in place action leader on items that deal with will to begin the process of corporate Governor Fukui’s October 1 speech knew the name. Now, they believe to come to them voluntarily for cases when you put that amount of money this topic. Well before he knew he and bank restructuring. Before the was quite telling. He said, “It’s vital more and more resources are going and that action really dried up the in place, but regardless, a strong would be governor, he was abun- recent election, Prime Minister for management of both the compa- to be devoted to actually fixing busi- supply. Still, it is very significant to message was received. There is a dantly curious how corporate restruc- Koizumi was selected to lead the nies and banks to become aware of nesses in Japan, creating a serious have independent valuation from the disproportionate appetite out there turing would fit with monetary and party. Significantly, he reappointed the urgency of corporate revitaliza- demand for talent to help. IRCJ on the discounted future cash among investors looking for the right fiscal policy, how it fit in the fix of Minister Takenaka and there was a tion through effective dialogue and flow method as a means of compari- I do not believe there has been a signs in Japan.

Load more

  13

Copy Link