TOKYO-Daikyo, the struggling condominium builder, has revealed a three-part rehabilitation program structured by the state agency, the Industrial Revitalization Corp. of Japan (IRCJ).

This is the first time the IRCJ has decided to help a major debtor of UFJ and it comes as UFJ seeks to aggressively reduce its exposure to its top 10 troubled borrowers. UFJ is one of Japan’s four mega-banks but has been particularly exposed to non-performing property loans.

As part of the rehabilitation program, Daikyo’s capital will be cut by 99.2 % and it will receive Y176.5 billion ($1.8 billion) in financial aid, in addition to a Y146.5-billion ($1.3-billion) debt waiver and Y30 billion ($269 million) via a debt-to equity swap from UFJ Bank as well as other banks. “The financial environment was getting tougher for us, especially with more than 60% of our total loans sourced from UFJ Bank,” says Daikyo president Jihei Yamazaki.

As part of the IRCJ plan, Daikyo will hold a fire sale of its non-core assets that include golf courses, hotels, resorts and a real estate leasing business. The company has yet to indicate how much it hopes to raise from the disposals but they are expected to attract foreign buyers.

At the same time as revealing the proposed remedial measures, Daikyo says it would report a special restructuring loss of Y260 billion ($2.3 billion) this year and a downward revision of its earnings estimates for the year.

A third plank of the rehabilitation program involves finding a sponsor or investor in Daikyo. Analysts suggest the most likely candidate is developer Mori Trust. A spokesperson for Mori says it would consider extending support to Daikyo if asked but had not yet held talks with the IRCJ.

Mori Trust–whose principal business is the leasing of office buildings–and Daikyo have in the past co-operated on business ventures. The two companies established a high-end condominium joint venture called Forestseine in 2001.

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