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.
JALs IPO was the
second-largest in the world this year and raised ¥663
billion ($8.5 billion). The airlines 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
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
It is a good sign for any
delinquent company and its possibilities of recovery, he
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
After the appointment of a new
chairman, Kazuo Inamori, and a restructuring process that
included cutting one-third of JALs workforce, the airline
has returned to profitability. In the IPO, ETIC sold its 96.5%
stake in JAL, earning ¥650 billion.
The lawyer predicted that following
the success of JALs 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 KKRs 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,
The government was criticised by All Nippon Airlines (ANA),
JALs main competitor, for its capital injection, which it
viewed as unfair treatment.
However the governments
determination to save JAL may be related to Japans 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 JALs
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
Aside from unfairness claims, many
are skeptical about JALs continued success in the
cutthroat and highly competitive global aviation
JALs 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).
Subordination in Japanese
Japan insider trading:
government calls for market advice on tougher