Japan Bankruptcies up 10% in November

Daniel Hauck, Reuters, Tokyo

Bankruptcies in Japan hit their fifth-highest post-war level in November, data showed on Friday, and they are expected to keep soaring as banks take a tougher line on borrowers and investors dump shares in troubled firms.

Private research firm Teikoku Databank said the number of corporate bankruptcies during November rose 10 percent from a year ago to 1,851 cases, which was also the highest total for a November since World War Two.

In Oct.1, 911 firms went bust, which was the third-highest level since the war.

Total debt held by firms that went bankrupt also soared in November to 1.88 trillion yen (US$14.92 billion), a 53.9 percent jump from a year earlier, as Taisei Fire & Marine Insurance Co Ltd and Niigata Engineering Co Ltd went under with large liabilities.

Two other listed companies, Ergotech Co Ltd and Nanaboshi Co Ltd, went bankrupt in November, making it the first month ever in which four listed firms failed and bringing the total for 2001 through November to twelve.

With the December failure of mid-sized Japanese contractor Aoki Corp sowing further market worries about the viability of weaker firms and Japanese banks fast losing their ability to support them, analysts warned on Friday that the rush of failures would continue.

Richard Jerram, an economist at ING Barings, said that with Japan's top financial watchdog, the Financial Services Agency, urging banks to set aside more provisions against risky borrowers, investors were realizing that debt-laden firms surviving on a drip-feed from banks could be in increasing peril.

"Once you've made a proper provision, you no longer have any incentive to lend them (risky firms) more money," said Jerram.

"That is what the market is starting to pick up on -- either the banks are going to raise provisions and then turn down requests for new loans, or the banks are going to fail, and the government is then going to be in a position to turn down requests for new loans."

Shares in companies with low share prices, typically below the 100 yen threshold, have come under increasing pressure after high profile failures like Mycal Corp in September.

Falls in bank shares have also sharpened in recent trade, with corporate investors joining speculative sellers in dumping the sector in anticipation of banks severing ties with corporate clients as they try to cut massive bad debts.

Teikoku said that 1,419 of the bankruptcy cases in November, some 76.7 percent, were caused by prolonged weakness in the economy.

The November cases pushed the 2001 total to 17,936, the third- highest post-war total, while bankruptcy debt was at 14.65 trillion yen, the second-highest after 2000.

Analysts have said corporate bankruptcies could total over 20,000 next year, coming close to or even passing the post-war record of 20,841 marked in 1984.

For the remainder of 2001 and next year, Teikoku said that the construction, distribution and retail sectors would be under the spotlight.

Japan's largest retail chain operator, Daiei Inc, saw its shares hit a record low of 69 yen at one point on Friday, adding to a drop of over 30 percent since the failure of Aoki.

In response, the company issued a statement saying its banks were fully behind it and that its plans to reduce debt were on track. The shares ended at 84 yen.