May 18, 2020 / 10:58 AM / 19 days ago

Japan ruling party panel proposes cash injections for virus-hit firms

TOKYO, May 18 (Reuters) - Lawmakers of Japan’s ruling party drafted proposals on Monday to secure funds of 10 trillion yen ($93 billion) in capital injections and financing for ailing companies, both big and small, hit by the coronavirus pandemic.

The proposals came from one of five panels of the Liberal Democratic Party tasked with crafting stimulus plans to be funded by a second extra budget in the fiscal year that began in April.

The panel also called for expanding the size of funds to tens of trillions of yen in the long run, by revising necessary rules and laws, including issuance of delivery bonds.

“The first thing we need to do is to provide liquidity,” its chairman, Yoichi Miyazawa, told reporters after a meeting of the panel, referring to cash-strapped firms.

“But when we look ahead, we also need to prepare a framework to offer capital to companies.”

He added, “We will probably need over 10 trillion yen in funds” to be injected to firms through existing frameworks.

Issuance of delivery bonds, a strategy floated in the past, will be granted to corporations in need of financing to be redeemed when cash demand arises at a later stage, thus avoiding direct impact on budget spending.

The funding scheme provides for state-affiliated lenders to invest in ailing companies by offering subordinated loans or accepting preferred shares, to help strengthen their financial standing and avoid bankruptcies.

But in the longer run, the government must aim to set aside “several tens of trillion yen” to offer support to companies that are core to Japan’s economy and regions, Miyazawa said.

The move underscores the challenge facing policymakers in helping companies to maintain management autonomy while preventing bankruptcies and buyout by foreign capital, which could threaten jobs and regional industrial competitiveness.

It also signalled an escalation in policymakers’ crisis response from a primary focus on financial support for small firms, so highlighting their concern over the widening fallout from the pandemic.

Slumping profits at big firms, such as auto giant Toyota Motor Corp, have prompted Japan to vow use of all available tools to help transport equipment makers hit by supply chain disruptions and factory shutdowns over the health crisis.

The government and the Bank of Japan should set up a special purpose vehicle to inject capital into companies hit by the pandemic, Miyazawa had told Reuters last month. ($1=107.2700 yen) (Reporting by Tetsushi Kajimoto and Leika Kihara; Editing by Clarence Fernandez)

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