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Seibu Presents Plan Seeking Debt Help

TOKYO — Seibu Department Stores Ltd.’s creditors will meet for a second time with officials from the financially troubled Japanese retail giant in about a month, and may then decide whether to endorse the store’s multibillion-dollar...

TOKYO — Seibu Department Stores Ltd.’s creditors will meet for a second time with officials from the financially troubled Japanese retail giant in about a month, and may then decide whether to endorse the store’s multibillion-dollar bail out plan.

This story first appeared in the January 23, 2003 issue of WWD.  Subscribe Today.

Seibu, still suffering from its failure in real estate development during the Nineties, earlier this week presented a restructuring plan to credit calling for $1.84 billion in loan forgiveness and conversion of debt into equity worth approximately $83.3 million. Dollar figures have been converted from the yen at current exchange rates.

Yukio Horiuchi, president, indicated to the press that he and Seibu chairman Kotaro Matsumoto will resign their positions. Horiuchi also disclosed that Seibu has asked Shigeaki Wada, currently president of Sogo Co. and former president of Seibu, to return to the top post at Seibu.

While no decision emerged from this week’s meeting, the creditors’ agreement to meet again on Feb. 21 was viewed as a positive sign, indicating that an agreement, either identical to the one proposed by Seibu or similar to it, is likely to be ironed out.

The creditors’ meeting held at Hotel Edmont Tuesday follows a brief announcement made by Seibu last week that the company decided to formulate a restructuring plan with full support from its main bank, Mizuho Corporate Bank, and seek support from other financial institutions on the basis of the so-called “Guidelines Concerning Private Liquidation.”

Reportedly, the government-supported guidelines are for bank-led business rehabilitation schemes, which were compiled by Japanese banking and other industry associations in 2001 in response to Japan’s prolonged bad-debt problem.

Seibu’s request calls for Mizuho to waive its claims to $1.13 billion in loans to Seibu and also for loan forgiveness of $708 million from five other banks, including Bank of Tokyo-Mitsubishi, Asahi Bank, Chuo Mitsui Trust & Banking Co. and Mitsubishi Trust & Banking Corp. Seibu is also seeking support from Credit Saison Co., a consumer credit company affiliated with Seibu.

Observers don’t expect the talks to be easy, but there is a strong feeling in the industry that the new government guidelines will help smooth the path to an agreement.

Some media reports say there is a strong possibility that the debt forgiveness involving Seibu will be covered by a planned government-supported Industrial Revitalization Organization, which is expected to begin its work in April and provide government endorsement of debt-related bank write-offs.

The restructuring is expected to entail integration of the 23-unit Seibu and 11-store Sogo Co. department store chains. Together, they would constitute a department store group with annual sales in excess of $8.3 billion, equal in sales to top-ranked Takashimaya.

Market watchers frequently note the irony in Seibu, which came to Sogo’s rescue in 2000 when it needed to restructure, turning to Sogo for assistance. A revitalized Sogo is expected to fund $41.6 million in a new capital injection to Seibu.

Wada, the former president of Seibu who went to Sogo two years ago and who is credited with rebuilding it, is expected to take over control of both Seibu and Sogo.

Seiyo Corp., a Seibu subsidiary which was engaged in real estate development, went under in 2000 after amassing cumulative losses of $1.75 billion. Seibu has never been able to get out from under this debt burden.

In its retail operations, Seibu posted sales of $4.67 billion in the fiscal year ended in February 2002, down 1 percent from the previous year. But its pretax profit was up 63 percent to $55 million, marking a second consecutive year of profit growth.

However, despite the strong performance of its core business, Seibu carried interest-bearing liabilities of $2.66 billion on a parent-only basis, or as much as $4.83 billion for the Seibu group as a whole, according to industry analysts here.

Under the restructuring plan, Seibu is expected within five years to close four stores in Kawasaki (west of Tokyo), Hakodate (on the northern island of Hokkaido), Sendai and Toyohashi (near Nagoya). The plan also calls for a reduction in personnel to about 2,400 at the end of 2006 from the current 5,400.