Daiichi Chuo Shares Halted After Nikkei Report on Bankruptcy

  • Company to seek bankruptcy protection Tuesday, Nikkei says
  • Daiichi Chuo may have as much as 120 billion yen in debt

Daiichi Chuo KK was halted from trading in Tokyo after the Nikkei newspaper reported the Japanese shipping line may seek bankruptcy protection as early as Tuesday amid a drop in freight rates.

Its debt totals about 120 billion yen ($1 billion), the newspaper reported. The Tokyo-based company, which mainly carries bulk cargoes such as iron ore, coal and grains, didn’t immediately respond to an e-mail seeking comment on the Nikkei report.

Daiichi Chuo may follow Sanko Steamship Co., a Japanese ship operator that filed for bankruptcy protection three years ago after failing to act quickly enough to cut expensive charters as rates fell. Declining demand amid an expansion of its fleet contributed to Daiichi Chuo posting losses for the past four fiscal years.

Shares of Mitsui O.S.K. Lines Ltd., Daiichi Chuo’s largest shareholder, fell 8 percent to 286 yen as of 11:22 a.m. in Tokyo. Mitsui O.S.K. is seeking confirmation of the Nikkei report and can’t comment further for now, Takafumi Shiina, a company spokesman, said by phone.

Emergency Funds

Mitsui O.S.K. owns 16.5 percent of Daiichi Chuo, according to data compiled by Bloomberg. It provided Daiichi Chuo with emergency financing three years ago to help weather a slump in dry-bulk rates, and also sent an executive to replace the unit’s previous president.

If Daiichi Chuo files for bankruptcy, the impact on Mitsui O.S.K. would be limited to 30 billion yen of preferred stock, Seigo Ando, an analyst at Mitsubishi UFJ Morgan Stanley, wrote in a memo.

“The stock market has been eyeing the risk of more help from Mitsui O.S.K.,” Ando wrote. “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.”

Daiichi Chuo shares fell 3.4 percent to 28 yen in Tokyo trading 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 pending confirmation of the report.

Daichii Chuo pursued an expansion strategy after a slump in the Baltic Dry Index, which indicates prices for transporting commodities by sea, amid expectations of a rebound led by demand from China. It expanded its fleet to as many as 240 ships at its peak.

The company has about 170 vessels now, according to the Nikkei.

The Baltic Dry Index has dropped 92 percent since hitting a record high in 2008. It was unchanged at 943 yesterday in London trading.

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