Japan builders lay groundwork for SMBC-led rescue

Three ailing Japanese construction companies unveiled restructuring schemes and earnings forecasts on Friday, laying the groundwork for a rescue project initiated by Sumitomo Mitsui Banking Corp.

Mitsui Construction Co Ltd and Sumitomo Construction Co Ltd plan to merge in what analysts have said is an attempt to create a company that is 'too big to fail' despite a tough business climate that has seen orders plummet.

Fujita Corp plans to spin off its relatively healthy construction operations in October with the aim of letting the new unit join the Sumitomo-Mitsui camp.

Combined sales of the three would create JapanÂ's sixth biggest construction company, although analysts have cast doubt on whether the combination will improve their competitiveness.

Earlier, banking group UFJ Holdings Inc said it would grant condominium builder Daikyo Inc a 342.3 billion yen ($2.74 billion) debt waiver in the biggest-ever rescue of a Japanese real estate company. A further 50.1 billion yen in assistance will be provided in a debt-for-equity swap.

Sumitomo Construction said it would seek financial help of 60 billion yen ($480 million), including debt forgiveness from creditor banks -- 40 billion yen from SMBC and 20 billion yen from Sumitomo Trust & Banking.

Sumitomo said it would cut its capital by 18.5 billion yen to 2.0 billion yen on August 2 and take part in a 30 billion yen debt-to-equity swap with its banks to strengthen its capital.

The scheme was outlined after the company unveiled a group net loss of 49.15 billion yen for the year ended in March against a year-ago loss of 1.91 billion yen.

Its partner, Mitsui, reported on Friday a group net profit of 171 million yen against a loss of 20.97 billion yen a year ago.

Fujita announced a group net loss of 4.27 billion yen against a loss of 4.45 billion.

Fujita said that after the planned spin-off of its construction business, the company would focus on its loss-making real estate business and take a 51 percent stake in the new company to be created through the spin-off.

The parent will be delisted when the new company goes public.

Fujita did not specify when the new unit was expected to join in the Mitsui-Sumitomo group.

FujitaÂ's parent firm would take care of 560 billion yen of the total 860 billion yen in debt held by the group after the spin off, the company said.

It said it would seek financial help in tackling the debt.

Fujita President Hiroaki Tamura will resign at the end of September to take management responsibility for causing the need for additional help from creditor banks.

SMBC issued a statement vowing to provide necessary help to Fujita.

Shares in Fujita ended the day flat at 28 yen. Shares in Sumitomo Construction last traded at 58 yen, down 1.69 percent, before they are being suspended at midday. Mitsui Construction shares fell 6.25 percent to 45 yen.

Daikyo requested a 470 billion yen bail-out from banks to shore up its finances after being swamped by a 473.9 billion yen ($3.8 billion) special loss to cover restructuring charges and investment losses in the last year to March.

Its shares closed unchanged at 94 cents. ($1=125.00 yen)

(source: Reuters)

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