By Juro Osawa
(This item first ran Friday.)
TOKYO (MarketWatch) -- Japan's government is fortifying its defense of the corporate sector by broadening sources of public funding for companies struggling to cope with the deepening recession.
To ensure firms have access to enough low-cost financing to cope with a sharp downturn in their businesses and a squeeze in global credit markets, Tokyo may double to Y2 trillion a facility to provide low-interest loans and cash infusions to undercapitalized companies, the Nikkei reported Friday.
That's on top of a Y2 trillion program by the Development Bank of Japan to buy commercial paper.
A government official declined to comment on the report, saying only that the current corporate loan program is in place "just to be careful."
The expansion would give companies access to yen funds, complementing a program unveiled Tuesday by the Ministry of Finance to channel $5 billion of its $1 trillion foreign exchange reserves through another policy bank to help companies with their foreign-currency financing needs.
With the economy likely to continue shrinking at a double-digit pace in the second quarter, demand in overseas markets wilting and conditions in financial markets showing no signs of improving, many Japanese firms are facing extreme stress.
Some analysts say the strain is likely to increase toward the fiscal year end on March 31.
The corporate lending framework "is more of a preemptive measure than an emergency action," said Shinko Securities market analyst Yukio Takahashi. "Some real estate, construction and nonbank financial firms may desperately need government support, but for automakers, technology firms and most other big companies, the financing situation is not as critical."
Major Japanese automakers like Toyota Motor Corp. and Honda Motor Co., as well as carriers Japan Airlines Corp. and All Nippon Airlines Co. have said they are considering the government lending program as an option.
"We are looking at various financial institutions and are not ruling out the government's loan program," said an ANA spokesman. A spokeswoman for Honda said the company is trying to find out more about the government program to judge what the best option would be.
For companies that have the option of borrowing from the private-sector financial institutions, the incentive for applying for the government loan program would be low interest rates and possibly more favorable repayment conditions, said Hiroyuki Fukunaga, chief executive of investment-research firm Investrust.
"The government program may be less demanding because it's meant to support the corporate sector, while private financial institutions could pressure borrowers and speed up the repayment process depending on their own conditions," said Fukunaga.
Tachibana Securities operating officer Kenichi Hirano said companies' financing situations ahead of the fiscal-year end are a major concern for market players. Such worries may have grown since commercial lender SFCG Co. filed for bankruptcy protection last month, triggering a selloff among nonbank financial stocks.
"Investors are assessing stocks based partly on how cash-rich their companies are," Hirano said.
Goldman Sachs analysts in a report Friday identified 15 Japanese technology companies on their financial risk watch list.
Of the 15, the brokerage said Toshiba Corp., Elpida Memory Inc. and Pioneer Corp. may have to consider capital increases in the near term. Longer term, the firm said capital increases are possible at Hitachi, Sony Corp., Ulvac Inc., Dainippon Screen Manufacturing Co. and Olympus Corp.
"Although share prices of companies with higher financial risks have already been underperforming, we think the market has yet to factor in company-specific issues and news flow in the run-up to full-year results," Goldman Sachs said.
An Elpida spokesman said the chip maker is considering various ways to strengthen its financial condition. It will likely raise Y40 billion to Y45 billion from companies it is has business relationships with and may also seek financial assistance from the government, the spokesman said.
Elpida's three-month free cash flow, as of Dec. 31, was minus Y21.1 billion, while its three-month operating cash flow was minus Y6.9 billion.
(Takashi Nakamichi and Yuzo Yamaguchi contributed to this article.)