Japan trade houses rekindle fears on Asia

Japan trade houses rekindle fears on Asia

TOKYO (Reuters): Japanese trading houses rekindled worries about their financial health yesterday with fresh disclosure of their vast exposure to the troubled Asian region.

Shares in five of the six leading houses sagged after they disclosed outstanding exposure totaling more than one trillion yen (US$7.2 billion) in Indonesia alone. Of the total, only 40 percent of is hedged.

"Shares in trading houses and banks are declining, which could mean we still need to be cautious about possible negative impact from the Asian woes," said Kunihiro Hatae, general manager at Tokyo Securities Co Ltd.

Exposure of the six houses in five Southeast Asian nations -- Indonesia, Thailand, Malaysia, the Philippines and South Korea -- totaled 1.55 trillion yen as of the end of March.

The latest figures, which include loans, investments and guarantees held by both parent companies and overseas affiliates, were higher than the parent-only exposure of 1.16 trillion yen announced on March 20.

The top six trading houses, known for handling a great variety of goods and services ranging from noodles to missiles, are Sumitomo Corp , Itochu Corp , Marubeni Corp Mitsubishi Corp Mitsui & Co Ltd and Nissho Iwai Corp .

The business daily Nihon Keizai Shimbun reported on Thursday that if short-term trading credit extended by the firms was included, the total exposure to Asia of the six would be 2.6 trillion yen.

"The hefty Asian and Indonesian exposures were taken by the market to be negative," said a trader at a second-tier Japanese brokerage.

Shares in Marubeni took a dive of 6.35 percent to 280, and Itochu sagged 2.78 percent to 315 in heavy trading.

The other major trading houses, except Sumitomo Corp -- which ended flat -- also suffered slippages in their share prices.

Several of the firms played down the concerns, saying most of their unhedged exposure in Asia was in the form of loans to affiliates, or subsidiaries of Japanese companies.

"You cannot just argue that unhedged exposures in Asia is all risky," said a spokesman for Mitsubishi Corp, which has a 273.3 billion yen commitment in Asia, of which only 84.7 billion yen has been hedged.

He said Mitsubishi was reviewing the risks of each project or transaction in the region, but added he saw no immediate need to sharply tighten risk control on a country-to-country basis.

"We have already taken into account the existing country risks," he said.

Takashi Kawai, an analyst at Nikko Research Center, said that despite the economic crisis gripping Asia, Japanese trading houses had yet to show signs that they planned to make drastic fund withdrawals from the region.

"Their stance towards Asia appears unchanged," said Kawai. "The population in Indonesia and Asia is just too big for them to withdraw.

"In Indonesia, although they may no longer take the tack of chasing every piece of business, they would prefer to back up financially troubled subsidiaries rather than withdraw funds from the country," he said.