TOKYO KKR & Co. LP (KKR.N), Carlyle Group LP (CG.O), Bain Capital and other private equity firms urged Japan's government on Friday to shrink the role of state-backed funds, saying they could squeeze out opportunities for private capital and delay restructuring for troubled companies.
Japan's two largest state-backed funds have the capacity to raise up to $37 billion to inject money into Japanese companies.
The funds have edged out private equity in recent bailouts of chipmaker Renesas Electronics Corp (6723.T) and Japan Airlines Co (9201.T), reflecting a policy favoring softer restructuring than outside investors would pursue.
Without new controls, the government funding could allow companies to "push back problems" and retain "idle assets," the Japan Private Equity Association said in a statement.
The association called on the administration of Prime Minister Shinzo Abe to set up a monitoring system on the return on government funds and to limit both the amount they invest and the period of their investment.
"Policy-driven finance and government capital should be supplied only to attract private-sector funds, and should be invested with appropriate governance and accountability," the association said.
The statement was the first by the group representing private equity firms, including Japanese firms Unison Capital and Advantage Partners.
The move follows a failed attempt by KKR to buy troubled Japanese chipmaker Renesas last year.
Japan's taxpayer-funded Innovation Network Corporation of Japan made a counter bid against KKR and succeeded in securing a two-thirds stake with an investment of 138.4 billion yen ($1.5 billion) into Renesas. Eight clients of Renesas including Toyota Motor Corp (7203.T) provided an additional 12 billion yen.
The Innovation Network Corporation has the ability to provide 1.8 trillion yen ($19 billion) to Japanese companies in government-guaranteed financing, the association said.
Japan's other major government fund called the Enterprise Turnaround Initiative Corporation of Japan, known as ETIC, has the ability to secure 1.7 trillion yen ($17.96 billion) in financing.
The ETIC bailed out Japan Airlines in 2010, brushing aside an offer made by American Airlines which had teamed up with a private equity firm TPG Capital. ($1 = 94.6650 Japanese yen)
(Reporting by Junko Fujita; Editing by Kevin Krolicki & Kim Coghill)