Nakayama Steel Works Ltd. (5408) is in talks with at least five banks led by Mitsubishi UFJ Financial Group Inc. (8306) to waive loan repayments after three years of losses, five bank officials with knowledge of the talks said.
The lenders include state-owned Development Bank of Japan Inc. and Sumitomo Mitsui Trust Holdings Inc. (8309), the officials said, asking not to be named because the talks are private. The company has asked about 40 lenders to forgive repayment of about 60 billion yen ($731 million) and plans to submit a restructuring plan in December, one of the officials said.
The Osaka-based steelmaker, part-owned by Nippon Steel & Sumitomo Metal Corp., Japan’s top producer of the metal, has struggled to boost sales amid slowing domestic demand and a stronger yen that helps Chinese and South Korean rivals. Nakayama Steel, coping with negative cash flows in four of the last five years, faces higher power costs as utilities raise rates.
Kansai Electric Power Co., the utility covering the area that includes Nakayama Steel’s Osaka plant, plans to raise rates 19.23 percent for corporate customers from April to cover higher fuel costs after Japan shuttered most of its nuclear stations over the last 18 months. Kansai Electric can raise the corporate power rate without government approval.
Nakayama Steel plans to seek aid from Japan’s Enterprise Turnaround Initiative Corp. and ask Nippon Steel, its largest shareholder, to double its stake in the company to 20 percent in return for debt forgiveness, the Nikkei newspaper reported earlier today, without citing anyone. Mitsubishi UFJ is the No. 3 shareholder in Nakayama with 3.8 percent, according to the steelmaker’s website.
Yumi Sugimoto, a Tokyo-based spokeswoman for Nakayama Steel, declined to comment on whether the company is in talks with its lenders on debt repayment.
Nakayama Steel shares jumped 55 percent, the largest increase since May 12, 1976, to 62 yen at the close in Tokyo. The shares have plunged 11 percent this year, compared with the benchmark Topix Index’s 7 percent gain.
A rise in power prices by Japan’s utilities may mean a 3 yen increase in the cost of a kilowatt hour and translate into a 100 billion-yen jump in costs for steel producers, Hiroshi Tomono, president and chief operating officer of Nippon Steel, said on Nov. 21 in Tokyo.
Nakayama has begun a cost-cutting program that includes reducing its workforce. The number of employees shrunk by 200 by October, Nakayama said in a Nov. 9 financial report on its website. The company is also seeking voluntary retirement and forecasts that will help retire a further 240 staff, the report says.
Nakayama had 1,554 staff as of March 31, according to data compiled by Bloomberg.
Yuji Okumura, a Tokyo-based spokesman for Mitsubishi UFJ, which is Nakayama Steel’s largest lender, declined to comment. Yasushi Kojima, a spokesman for Sumitomo Mitsui Trust, and Daisuke Inaba, a spokesman for Development Bank of Japan (8301), also declined to comment.