Japanese LBO market feels pinch of credit squeeze

By Alison Tudor, Asia Private Equity Correspondent

TOKYO (Reuters) - The storm in global credit markets has reached Japan, stalling leveraged buyouts and leaving banks exposed to unwanted risk, although deep-pocketed and conservative local banks are expected to act as a buffer.

Deals disrupted by the credit squeeze include the syndication of buyout debt for MBK Partners' acquisition of software firm Yayoi, Advantage Partners' purchase of Tokyo Star Bank Ltd and Liberty Global Inc's capital-raising, according to financial sources.

Japan is generally regarded as a safe haven from the credit storm as most buyouts there are funded by huge domestic commercial banks with enormous deposit bases and relatively little exposure to highly leveraged products in the United States, where the credit squeeze originated.

Also in Japan, buyout debt is generally bought by the banks and held for interest repayments, rather than traded.

Still, deals have been getting bigger and more sophisticated in recent years, creating space for international banks to get involved. Those banks are now pulling back.

"We're not lending any more as there is nothing going out the back," said a banker at an international lender in Tokyo that is having trouble selling buyout debt it took on in the United States and Europe.

J:COM DEAL STRUGGLES

In one Japanese deal beset by global risk-aversion, Liberty is using the shares of its holding in cable company Jupiter Telecommunications Co (J:COM), Japan's largest broadband communications provider, to raise capital. The deal is being underwritten by Citigroup