Summary

Key problem is shareholder's pain tolerance level.

Analysis

 
Hot topic, JAL recent developments as below:
 
July 2006 public fund raising: Y140b
March 2008: Mitsui Corp takes Y150b preferred shares
June 2009 Development bank of Japan agrees Y100b financing with partial Japanese Government guarantee (very unusual)
August 20 2009: turnaround plan first project draft conference
August 21 2009; negotiations to merge air parcel business with NYK
September 15 2009: turnaround plan second conference
September 24 2009: negotiations between JAL CEO and Ministry of Land Infrastructure and Transport start
September 25 2009: Government sets up JAL turnaround task force
October’s end: JAL rehabilitation plan draft.
 
Japan Rehabilitation laws are equivalent to GM Chapter 11 proceedings. Problem lies with JAL shareholders rights. In previous such proceeding if legal liquidation and debt waiver was involved shareholder’s responsibility was addressed. Taxpayer’s money injection following large-scale capital reduction translates into shareholders rights big dilution. Provided it is neither a 100% capital reduction nor legal liquidation shareholder’s rights still exist but beyond acceptable pain level.
 
 
15th October JAL stock price plummeted to Y115 intra-day low: is this getting even close to breakdown value? As previously stated fair evaluation of disposable assets (‘good JAL’) brings an answer.

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Analyses are solely the work of the authors and have not been edited or endorsed by GLG.