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Fundraising galore, corporate bond issuances at record high in June, and government enforced inefficiency at JAL

Corporate bond issuances by Japanese firms shot to a record 1.74 trillion yen in June, according to a recent report in the Nikkei. This figure is up 150 percent on May 2008, reflecting the intense amount of fundraising that is currently happening in Japan.

June’s bond issuances appear to be interesting because many are coming from non-financial institutions. Sony issued 220 billion yen in debt, while Honda’s June issuance, its first in 16 years, stood at 70 billion yen.

Financial firms, however, have not stopped their plans to issue more debt:
Nippon Life Insurance announced
that it intends to raise about 100 billion yen in debt by August.

New equity issuances are also taking place, with Orix announces that it will sell 18 million new shares in an attempt to raise 99.9 billion yen in capital. Orix has not yet set an exact offering price, and news of the announcement helped drive its shares down 0.7 percent in Thursday’s trading. According to the Nikkei, Orix plans to use 30 billion yen worth of funds raised to help pay down debt.

The biggest fundraising news this week came on Monday, when Mizuho Financial Group’s plans to raise up to 600 billion yen by selling 2.8 billion new shares emerged. On Wednesday, All Nippon Airways announced plans to issue 575 million new shares, seeking to raise 182 billion yen. ANA hopes to use the cash to upgrade its fleet.

Of course, ANA competitor Japan Airlines is also looking to raise cash, in the form of a 100 billion yen loan from the Development Bank of Japan and three mega banks. The Nikkei hints that the banks involved are nervous about JAL’s ability to repay the loan, even with partial backing from the government. As the paper puts it:

In particular, the mega banks seem to believe that JAL has not fully committed to restructuring. Concerned, they are urging the airline to take steps like dropping unprofitable domestic and foreign routes and laying off pilots and flight attendants. While such moves would not allow the firm to “pay off its huge amount of interest-bearing debt right away, (they would help it) return to a net profit soon,” according to an official at one mega bank.

The true impediment to increased efficiency, however, might not be coming from JAL’s scelrotic management, but from Kasumigaseki:

[T]he Transport Ministry maintains that a major route restructuring would run counter to national interests, saying that the top priority should be maintaining flights to remote islands and between regional airports and foreign cities. “The government has come to the rescue precisely because JAL has this critical responsibility,” said one ministry official.

The ministry is suggesting job and wage cuts, but only to the extent that they do not impact existing routes.

If you’re bewildered by that logic, you should be. According to the Transport Ministry, JAL, a private company, has the “critical responsibility” to lose money by keeping unprofitable routes open. Even further, that “critical responsibility” to uphold inefficiency in the private sector trumps job security and the potential for wage growth (isn’t increased domestic spending supposed to be a priority?).

In other words, JAL can’t make decisions on their own. They have to run plans for routes past the Transport Ministry. That shouldn’t be surprising, and it really isn’t. It’s just insane.

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