Update on Japanese bad debt restructuring

Shiota, Yoshinobu

Over the past few years, Japan has slowly entered into the process of bad debt restructuring. This process is taking place in two phases: an initial phase of bad debt restructuring, namely the consolidation of ownership of bad assets, which is now surfacing as bad asset receptors are being established; and a second phase, regarding the dispersion of ownership of bad assets, which has not yet emerged but will occur gradually over the next five years. The author explores a range of investment opportunities that are emerging as this restructuring process takes place. Particularly, two developments from last summer - the establishment of the Housing Loan Administration Corporation and the Resolution and Collection Bank - indicate that borrowers from Jusen companies and failed credit co-ops are no longer supported by the Japanese banking system. These borrowers, largely real estate developers many of whom are already technically insolvent, have been left with no other alternative but significant reorganization including the total liquidation of assets. Opportunities are arising from these bankruptcy/liquidation sales. Another area of opportunity lies in the increasing consolidation among banks, particularly among smaller shinking and second-tier regional banks which have been left without any specific official rescue packages due to the current political climate. As they consolidate there will be a further growth of opportunities for investors.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 130
Published Here
February 9, 2011