Japan Airlines IPO sets restructuring precedent

Author: Ashley Lee | Published: 26 Sep 2012
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Japan Airlines’ (JAL) initial public offering (IPO) this month could signal a new way for the Japanese government to assist distressed companies with strong assets, sources say.

JAL’s IPO was the second-largest in the world this year and raised ¥663 billion ($8.5 billion). The airline’s turnaround less than three years after its collapse represents a new opportunity for insolvent Japanese companies.

Its success could prompt the Japanese government to look more closely at investing in delinquent but important domestic companies, then recouping its investment via the capital markets after a successful restructuring.

A Japan-based lawyer experienced in capital markets transactions said that the transaction marked the fastest relisting on the Tokyo Stock Exchange of a Japanese company in Japan which had reorganised under the Corporate Reorganisation Act (similar to the US’ Chapter 11).

“It is a good sign for any delinquent company and its possibilities of recovery,” he said.

In January 2010, JAL applied for court protection under the Corporate Rehabilitation Act and was granted ¥350 billion from the Enterprise Turnaround Initiative Corporation of Japan (ETIC) - a company owned jointly by the Japanese government and private companies to support distressed corporations.

After the appointment of a new chairman, Kazuo Inamori, and a restructuring process that included cutting one-third of JAL’s workforce, the airline has returned to profitability. In the IPO, ETIC sold its 96.5% stake in JAL, earning ¥650 billion.

Restructuring via government investment

The lawyer predicted that following the success of JAL’s listing, other good companies that have encountered financial trouble such as Sharp and Elpida may have a means to move forward.

“There may be similar IPOs that emerge from Japan based on other delinquent companies with financial support as the government has to collect money from its investments, as it did with JAL,” he said.

Given the amount of troubled Japanese companies in the media spotlight, this may be a way for the Japanese government to keep important firms under domestic ownership. For example, a government-led fund, Innovation Network Corporation, has moved to derail KKR’s acquisition of automotive microcontroller chip maker Renesas because of its importance to Japanese companies.

The source said that more government investments and subsequent IPOs could be forthcoming. He said that companies that have received money from the government must pay back their rescue packages, and often do so through the capital markets.

“Underwriters and financiers should keep an eye out for the companies that have received government funds and are looking to pay back investments,” he commented.


The government was criticised by All Nippon Airlines (ANA), JAL’s main competitor, for its capital injection, which it viewed as unfair treatment.

However the government’s determination to save JAL may be related to Japan’s island geography and a lack of competition from other domestic airlines. The source said that if there was only one big airline in Japan after JAL was liquidated and wound up, it may have resulted in competition and antitrust issues. It also could give rise to airline-customer dissatisfaction.

Various media outlets have alleged that JAL’s recovery is due to other forms of government support. Japanese banks forgave more than ¥500 billion of JAL debt and the airline will receive corporate tax breaks for seven years.

Aside from unfairness claims, many are skeptical about JAL’s continued success in the cutthroat and highly competitive global aviation industry.

JAL’s share prices dropped 8.7 percent below the initial offering price because of cancelled flights from China amid a territorial dispute between China and Japan over the Senkaku Islands (Diaoyu Islands in Chinese).

See also

‘Subordination in Japanese insolvency proceedings’


‘Japan insider trading: government calls for market advice on tougher rules’