Bad loans in Japan offers lucrative business for U.S. 'vulture funds'

Investment funds with foreign capital affiliation are referred to as vultures.

In Japan, they find lucrative business opportunities in bad loans which Japanese major banks write off.

The June 10 issue of the Sunday Akahata carried a story of a vulture fund H which gained a profit of 1.5 billion yen (12.5 million dollars) in just three months by the use of a company S listed in the Tokyo Stock Exchange second section.

Company S's liabilities were found to exceed its assets in 1991. The company streamlined its operations, including a personnel reduction to 245 from 400. But its main bank, D Bank, neglected to fulfill its responsibility and in 1998 denied Company S new loans.

A foreign-owned investment consultant Company G obtained Company S shares, and became the largest holder of Company S stock in order to control its business.

It issued new shares for 1.13 billion yen (9 million dollars), whose holders are predetermined to be a foreign capital investment fund H. Company G also issued convertible bonds worth 60 million yen, and 12 other foreign-based investment funds bought all the convertible bonds for 3 billion yen (25 million dollars). These moves boosted the Company S share price, and investment fund H gained 1.5 billion yen by selling all new shares three months later. The gain of the twelve foreign capitalized investment funds from converting the bonds to stock is estimated to be 10 billion yen (83 million dollars).

The whole move represents foreign speculative investors' (possibly involving Japan's speculative groups) tactics of taking advantage of rigging stock prices to fluctuate.

A Company S union official said to Akahata, "We negotiated with the main bank D over the rehabilitation of the company. But the bank refused to fulfill its social responsibility and gave up the company as prey to vultures in order to protect its own interests."

Akahata said that the story is an alarm warning of the Koizumi Cabinet's plan to allow banks to write off their bad loans. A likely consequence is that foreign-owned capitalized investment funds buy at a low price these abandoned loans. The problem with these speculative investment groups is that they are not interested in rehabilitating the failed businesses. Their aim is to get big profits in a short term.

Imamiya Kenji, professor emeritus of Chuo University and an expert in international finance, said as follows:

"The vulture funds started in the U.S. in the mid 1980s. As the U.S. economy began to recover from around 1992, they turned to Asia for profits. The vultures show no interest in companies which are really hopeless. They turn to well-known companies or small- and medium sized enterprises with a technical edge. The vulture funds force such a failed company to carry out corporate restructuring. Their design is to collect on their investment and gain profits within five years at the most. Their intention is the same as what Prime Minister Koizumi Jun'ichiro intends to do in the name of 'structural reform.'

"The Japanese government seems to be expecting foreign capital to play a part in rehabilitating the Japanese economy, but foreign capital will strip the Japanese economy and undermine the industrial base." (end)