Terrie's Take 701 -- Many More Bankruptcies Next Month? E-biz news from Japan.

Terrie's Take terrie at mailman.japaninc.com
Sun Mar 10 20:49:44 JST 2013

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Mar 10, 2013, Issue No. 701


- What's New -- Many More Bankruptcies Next Month?
- News -- Australia becomes Japan's largest source of LNG
- Upcoming Events
- Corrections/Feedback -- Car sales not so bad
- Travel Picks -- Art in Tokyo, Handmade Dolls in Kyoto
- News Credits

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In December 2009, the People's New Party as the junior partner of the then
DPJ government, pushed through legislation which required the nation's
banks to "accommodate" requests from small to medium-sized enterprises
(SMEs) for changes in their loan terms without being penalizing the said
companies. The most common change request by far was to stop repaying
principal and to make substantially reduced interest payments. The "Kamei
loans moratorium" law in and of itself had no teeth, but given that the
Financial Services Agency (FSA) was charged with managing its
implementation -- something apparently it didn't want to get involved in --
the banks really had no choice but to comply.

We remember being impressed by the brazenness (and success) of the proposed
new law by Shizuka Kamei, the banking and postal services minister at the
time, who effectively wanted to supply trillions of yen of soft loan
extensions to SMEs without causing the government to carry the debts on its
books (although in most cases, the government's Hosho-kyokai credit
guarantee corporation is involved at some level). Rather, it was the banks
who would have to carry the hundreds of thousands of companies who might
have otherwise had to shut down. At the time, the banks complained
vociferously, but the government's fear of a deep recession caused by the
Lehman Shock was stronger, and the law was passed. There has been much
commentary over the last 20 years about Japan's zombie companies, and with
Kamei's new law, these companies were given new respite that was to last,
after two renewals, until the end of this month.

[Continued below...]

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[...Article continues]

In the last year, there has been quiet but growing concern in the banking
industry as to the downside of all these stalled loans. As we have stated
in past issues of Terrie's Take, the FSA estimates the value of loans under
the moratorium probably total around JPY230bn. However, we seriously doubt
that this number is correct. As we edge closer to the end of the month,
more and more numbers are starting to appear in the press that suggest the
real number is quite huge.

For example, the Japan Times reported a while ago that 3.4m loans were
extended to both companies and individuals (because real estate loans were
allowed to be renegotiated as well), then the Nikkei has consistently said
in the last few months that about 300,000-400,000 companies have stalled
loans. If you were to believe the FSA number, JPY230bn divided 3.4m loans,
you get an average loan value of just JPY760,000. We don't know of any real
estate loan in a major Japanese city, let alone a company loan, that would
be that small.

Instead, if we were to make an intelligent guess, we think that the 400,000
companies are probably responsible for around 1.2m of the loans. The reason
we say this is that it is common practice among Japanese SMEs to take loans
from multiple banks, since this allows them to get more capital and the
banks are happy because they can spread the risk. From what we see, the
average spread of loans for a single company is at least 3 different banks,
and for companies deeper in trouble the spread is probably -- 5 or more, if
you count the personal finance loans for the CEO and founding family.

As to just how much money those 1.2m loans represent, you need to
understand how Japanese SMEs companies "graduate" up the debt tree. Because
there are so few equity investors (angels, venture capital firms, etc.) in
Japan, companies have little option but to grow with debt, and it's a
well-trodden path. They start out with the government's own lending agency
for SMEs, the Japan Finance Corporation (JFC), then only after they have
outgrown that route do they go to the banks. Since the JFC is very
responsive and as of January this year was lending an average JPY6.6m (2013
number derived from their lending JPY2.2trn to 333,119 companies), it's
reasonable to think that any subsequent bank loans to a given SME will be
at least this amount again, if not larger. We think the average is probably
a bit more than double -- say, JPY15m per loan.

So now if you take those 400,000 companies and multiply them by JPY15m
each, then instead of the FSA's low-impact JPY230bn (US$2.4bn) of
liabilities you get a whopping JPY6trn (US$62bn). That's a serious number,
and we're surprised that this is not being given more coverage in the
financial press, yet. Maybe with all the focus on the stock markets and
Abe's awakening of "animal spirits", everyone is ignoring the ugly bits of
the economy and hoping that the trickle down of wealth will help many of
these troubled companies back on their feet again.

But the fact is that for a lender to ask for a moratorium on loan principal
repayments, they must really be a the end of the road financially, as the
banks will always warn a company asking for a change in terms that this
will be a financial black mark against them (i.e., limited or no loans in
the future). And given the events of the last four years (post-Lehman
malaise then the 3/11 Tohoku earthquake), it is hard to believe that any of
these companies have seen their financial circumstances improve. So while
the world looks at Japan and thinks that a recovery is underway, the
reality is that up 25% of Japan's functioning (versus dormant) companies
are instead tottering on the edge of insolvency.

What will happen next? Although the scene is set for a mini massacre of
SMEs, it appears that despite of the Kamei law ending, the FSA is still
putting pressure on the banks to be soft on troubled loans. Since goodwill
with the FSA is imperative for any bank to stay in business, the Nikkei
says that banks, particularly highly exposed regional ones, are putting
aside loan provisions of up to 10%-20% of their SME loan exposure. Yet at
the same time they are still helping firms they judge to have some life
left. Perhaps this industry-wide support action helps to explain why,
mysteriously with SME financial armageddon potentially only days away, the
bankruptcy rate for companies leaving more than JPY10m of debt behind them
was at an 18-year low last month. February saw only 916 companies going
under, about 11% less than in the same period last year.

We shake our heads. We know there is a fire, but so far, no smoke.


Lastly, if you're interested in the Japanese view of current China economic
and political trends, you won't want to miss a presentation on March 25th
by Nobuo Asai, a well-known political commentator appearing on the TBS
current affairs TV program "Sunday Morning". Mr. Asai was a researcher at
Tokyo University then Georgetown University, and worked at Nomura Research
Institute for many years. He really knows his stuff. Price of admission is
free, as the presentation is part of an overall Yokohama City promotional


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+++ NEWS

- Globis ties up with leading Indian business school
- Non-GMO soybean search leads to Ukraine
- Australia becomes Japan's largest source of LNG
- Japan rises in world tourism competitiveness
- Balloon-hoisted transmission stations for future emergencies

=> Globis ties up with leading Indian business school

Seems that Japan's largest private MBA school operator Globis is continuing
its international push, this time with a tie-up with Hyderabad, India-based
Indian School of Business (ISB). According to the tie-up agreement, ISB
will design and deliver a variety of courses and programs for private
sector and governmental organizations in Japan which are looking to
internationalize their workforce. Source: TT commentary from daijiworld.com,
Mar 9, 2013)


=> Non-GMO soybean search leads to Ukraine

Although the US has been shipping soybeans to Japan for decades, the
encroachment by GMO crops has meant that trading houses are now looking
further afield for supplies. Over the last few years the focus has been on
cultivation in the Amazon basin and competition for harvests with Chinese
buyers. But now trading house Sojitz has started importing soybeans from
the Ukraine and says that the quality is good enough that they expect the
"few hundred" tons slated for this year to jump to 5,000 tons within the
next 3 years. Japan consumes 950,000 tons of soybeans, of which 92% come
from the USA and Canada. Ukraine produces 2.33m tons of soybeans a year --
so there seems to be some scope for expansion of this project. (Source: TT
commentary from bloomberg.com, Mar 8, 2013)


=> Australia becomes Japan's largest source of LNG

With the ramp up of the West Australian Pluto gas project, Australia has
now overtaken Qatar as the largest supplier of LNG to Japan, shipping 15.9m
tonnes in 2012. In comparison, Qatar, which has been the traditional major
supplier, exported 15.7m tonnes, while Malaysia shipped 14.6m tonnes.
Between them, the three countries now account for over half of Japan's
current LNG needs, which were 87.3m tonnes last year due to the continuing
shut-down of most of the nation's nuclear power stations. LNG is now one of
Australia's biggest exports, worth AU$13.8bn in 2012. (Source: TT
commentary from skynews.com.au, Mar 9, 2013)


=> Japan rises in world tourism competitiveness

Although it has no bearing on actual visitor numbers, Japan did quite well
in a recent World Economic Forum ranking of destination countries based on
their competitiveness. The organization's latest report puts Japan at 14th
place, following Switzerland, Germany, Austria, Spain, the UK, and the USA
in the first six places, and ahead of South Korea in 25th place. The
Japanese high ranking was based on its customer-oriented culture, transport
infrastructure, and IT infrastructure (although in the IT category, it came
in 7th).  (Source: TT commentary from asahi.com, Mar 8, 2013)


=> Balloon-hoisted transmission stations for future emergencies

Hats off to Softbank for successfully testing its latest balloon-based
emergency transmission stations last week. Softbank can get one of the
transmission stations up in the air and functional in about 5 hours,
meaning that if there is a major disaster knocking out regular transmission
towers, at least cell phone access will be up and running again quickly.
The balloon transmission stations can support about 100 concurrent users
within a range of 3-5 kilometers. (Source: TT commentary from
e.nikkei.comMar 8, 2013)


NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links -- we apologize for the inconvenience.



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as other employers of bilinguals.


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Due to the technical nature and demanding work environment, this position
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- Application Support Helpdesk Engineer, major global internet and software
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- Help Center Analyst, global bank in Okinawa, JPY 2.5M - 3.5M
- Staffing Consultant, IT integration services provider, JPY 2.5M - 3M
- Desktop Engineer, IT services provider, JPY 3M - 5M
- Data Center Operator, global financial services company, JPY 3M - 5M

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An executive seminar at Tokyo Midtown on the attractions of Yokohama for
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Fumiko Hayashi. After the talks, relax with a drink and browse a selection
of relevant booths. Apply now for this one-off seminar and learn the
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Speaker: Timothy Langley. Esq, President and Representative Director of
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Title: "A New World Order?"

Details: Complete event details at http://www.icajapan.jp/

Date: Thursday, March 21, 2013
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members), Open to all, no sign
ups at the door!!!!!!!

RSVP: RSVP by 5pm on Friday, March 15th, Venue is The Foreign
Correspondents' Club of Japan


In this section we run comments and corrections submitted by readers. We
encourage you to spot our mistakes and amplify our points, by email, to
editors at terrie.com.

=> In TT-700, we carried a news item about 2013 auto sales being down and
not showing any sign of recovery. A reader gives us a bit more insight into

*** Reader: Congratulations on this 700th edition! Writing a weekly
newsletter for more than fourteen years is truly an achievement. I hope
that you will be able to keep on writing these newsletters.

I noticed the news item about domestic car sales. It may be worthwhile to
mention that the domestic car sales in the early months of 2012 were going
through a peak as the industry was recovering not only from the earthquake
of 2011 but also the flooding in late 2011 in Thailand. Many car components
and sub-components are being manufactured in Thailand and then shipped for
assembly into Japan. That supply chain was affected by the flooding. This
had hampered the recovery of the domestic car factories and delayed
deliveries to customers to the end of 2011 and early 2012. Therefore, as
early 2012 saw a peak in domestic car sales, is it not really a big
surprise to see a drop in this year's car sales. The end of the government
incentives on buying eco-cars also did not help to promote car sales.

If you want to review the numbers yourself I can encourage you to use the
online database of the Japanese car manufacturers association JAMA at
http://jamaserv.jama.or.jp/newdb/eng/index.html You can find here all data
on both domestic production and domestic sales.



=> Design Festa, Tokyo
Biannual art and design expo

If you’ve been searching for a place to appreciate meticulous artwork,
listen to an indie death metal band, buy some hand-made crafts, and have
your face painted with movie-caliber scar makeup all under the same roof,
you can rest easy now. Design Festa is a two-day art and design festival
held regularly in the Tokyo Big Sight convention center in Odaiba, Tokyo.
Much to the festival’s credit, the terms “art” and “design” are liberally
defined here, giving the event a true “there’s something for everyone”
spirit. Amateur and professional artists of all degrees of success flock to
the event to display and sell their work, and just taking it all in is an
event in itself.

What can you see there? Actually, the better question would be ‘What can’t
you see there?’ To start with, there’s paintings and drawings. Lots and
lots and lots of paintings and drawings. Some are finished, on display and
awaiting your appraisal (or purchase). Others are in-progress. Large --
sometimes enormous -- canvases and walls are set up so festival attendees
can watch the artists hard at work. There are handmade crafts, another
loosely-defined term which includes everything from jewelry and book covers
to toys, metal work, wood work, musical instruments, action figures,
household items, and even clothing. One section of the festival is the
“dark room,” reserved for artists whose work is best viewed in the shadows.
These works are often abstract collections of lighting, paintings under
black lights, and so on.


=> Ando Family's Handmade Dolls, Kyoto
Come face to face with the doll maker to Royalty

Would you like to be the doll maker to the King of Thailand? How about the
Imperial Palace in Tokyo? What about the idea that you and your descendants
might be the preservers of this unique Japanese handicraft for hundreds of
years? Or could you imagine having a mini army of workers laboring around
the clock to make each doll, paint each eye, design, select and sew each

Today I was blessed with the opportunity to enter the previously closed
world of royalty. If only I could shrink myself to a Japanese doll
(Ningyou) and be presented to the King! Even if I could not get into the
presence of the Emperor I can still get an insight into royalty within the
showroom. In the tradition of Hina Matsuri, or doll festival, the top two
dolls on the presentation platform (hina dan) represent the Emperor
(Odarisama) and Empress (Ohinasama). Kyoto is known as the center of
handicraft design since it was founded in the Heian period in 794. Many of
these handicrafts such as folding fans, and dolls are featured in the Tales
of Genji, the oldest written novel in the world and Kyoto's most famous




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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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