Summary
Shares of ailing consumer finance company Aiful Corp. (8515) fell 27% Friday following announcement of plans to seek a delay in repayment of nearly $3 billion in loans. Unsympathetic comments by Japan's Minister for Postal and Financial Services Hon. Shizuka Kamei served further rattle the market, sending many foreign investors running for the door. Market fear is likely to drive down share prices and drive up the cost of capital for major consumer lenders Takefuji and Promise .
Analysis
Aiful has taken one step closer to bankruptcy protection Friday in announcing plans to seek relief in the repayment of $3 billion in loans to Sumitomo Trust and Banking, Aozora Bank and other creditors, sending the price of its credit default swaps soaring.
Newly appointed State Minister for Postal and Financial Services Hon. Shizuka Kamei suggested that Aiful's problems may be company specific as opposed to a symptom of broader industry malaise, sent markets reeling. The Minister reiterated plans to seek a three year moratorium on repayment of small business loans, a proposal that would weigh heavily on major consumer finance company and SMFG affiliate Promise Corporation, which recently announced plans to shift focus toward business loans.
Aiful and Takefuji rely heavily on financial markets for working capital with greater issuance of commercial paper and sale of asset backed securities than bank-affiliated rivals Promise and Acom. Friday's announcement will make it increasingly difficult for Japanese non-bank lenders to affordably procure funds on capital markets. Shares in Acom rose, reflecting the market's confidence in its position as a full-fledged Mitsubishi UFJ Financial Group affiliate. MUFG holds a 40% stake in Acom in contrast to the estimated 21% of shares in Promise held by SMFG
Daniel Lintz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
