Japan’s Daiichi Chuo Files for Bankruptcy; Shares to Delist

  • Market turned `a lot worse' than expected, president says
  • Daiichi Chuo and unit have 177 billion yen in liabilities

Daiichi Chuo KK filed for bankruptcy protection in Tokyo with 120 billion yen ($1 billion) in liabilities, as over-expansion amid plunging freight rates pushed the Japanese shipping line to four straight years of losses.

Its wholly owned Star Bulk Carrier Co. unit also filed for bankruptcy with 57 billion yen in liabilities, Daiichi Chuo said in a statement Tuesday.

Daiichi Chuo added more ships to its fleet even as rates plummeted after the collapse of Lehman Brothers Holdings Inc. in 2008, President Masakazu Yakushiji said at a briefing in Tokyo. The company was counting on a rebound in Chinese demand that failed to materialize, he said.

“We reduced the fleet pretty much as planned after I became president,” said Yakushiji, who took over in 2012. “However, the market turned a lot worse than we expected. We didn’t expect the market to be bad for four years.”

Daiichi Chuo joins Sanko Steamship Co., a closely held Japanese ship operator that filed for bankruptcy protection three years ago after it was slow to cut expensive charters as rates fell. Shares of Daiichi Chuo, which mainly carries bulk cargoes such as iron ore, coal and grains, will be delisted Oct. 30, the Tokyo Stock Exchange said.

Low Freight Rates

Daiichi Chuo fell 3.4 percent to 28 yen in Tokyo trading on Monday, giving the company a market value of 11.7 billion yen. The shares, which have declined 44 percent this year, were suspended from trading Tuesday.

Daiichi Chuo’s struggles won’t affect the larger Japanese shipping market, the head of an industry body said. Nippon Yusen K.K., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. are the nation’s top three shipping companies.

“Other Japanese shipping companies are operating soundly,” Yasumi Kudo, chairman of The Japanese Shipowners’ Association, told reporters Tuesday in Tokyo. “With the yen around 120 to the dollar, they’re doing OK. Conversely,
overseas dry-bulk shipping lines are in a tougher situation.”

The Baltic Dry Index, a benchmark that indicates transport rates for seaborne freight, has dropped 92 percent from its record high in 2008, contributing to Daiichi Chuo’s losses. The index was unchanged Monday at 943 points in London trading.

Mitsui O.S.K. Lines Ltd., which bought preferred stock in Daiichi Chuo three years ago, said it would book a 25 billion yen charge this quarter on the bankruptcy. The company hasn’t offered to inject fresh funds into Daiichi Chuo, Yakushiji said.

Largest Shareholder

Mitsui O.S.K. owns 16.5 percent of Daiichi Chuo, making it the largest shareholder, according to data compiled by Bloomberg. In 2012 it provided the company with emergency financing during a slump in dry-bulk rates and chose Yakushiji to replace Daiichi Chuo’s president.

Mitsui O.S.K. fell 7.4 percent Tuesday to close at 288 yen in Tokyo trading, before Yakushiji’s comments.

“The stock market has been eyeing the risk of more help from Mitsui O.S.K.,” Seigo Ando, an analyst at Mitsubishi UFJ Morgan Stanley, wrote in a note published earlier Tuesday. “Should Daiichi Chuo receive civil bankruptcy law approval, it could free Mitsui O.S.K. from taking drastic steps and actually be positive for their stock.”

At its peak Daiichi Chuo had 240 ships in its fleet. The company now has about 170 vessels and about 400 employees, the Nikkei newspaper reported earlier Tuesday. Daiichi Chuo pays more in fees to charter vessels than it takes from shipping, the Nikkei said.

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