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Japan-Update

Takata close to filing for bankruptcy protection in Japan

Troubled air bag maker's liabilities seen at $9bn

TOKYO -- Embattled air bag maker Takata is expected to file for bankruptcy protection here as early as this month, likely marking the biggest corporate failure in Japanese manufacturing in the postwar era.

Takata's liabilities are seen exceeding 1 trillion yen ($9.02 billion) following a massive global recall of air bags linked to deadly explosions. U.S.-based subsidiary TK Holdings' board is expected to approve a filing for Chapter 11 bankruptcy there later this month.

American autoparts maker Key Safety Systems, owned by China's Ningbo Joyson Electronic, will sponsor Takata's turnaround process.

A new company created under Key Safety is to purchase Takata operations for about 180 billion yen and continue supplying air bags, seat belts and other products. The shrunken Takata will remain responsible for recall-related liabilities.

Founding family pressured to give up on out-of-court debt settlement

Meanwhile, Takata's creditor banks are expected to continue providing financial assistance to the company to ensure it can pay its suppliers and deliver products to its clients.

As of October 2016, Takata air bags had killed 11 people in the U.S. alone. The deaths have been blamed on rupturing inflators. Some 100 million units have been recalled worldwide, with the entire process expected to cost about 1.3 trillion yen. Automakers have shouldered most of the burden for now, since Takata claims it cannot determine where the fault for the defect lies and is unable to make "a reasonable estimate of the costs likely to be borne by the group."

Automakers seek to recoup those costs through the rehabilitation process. Takata's total liabilities came to 397.8 billion yen as of the end of March. But with the recall costs, that figure will likely climb above 1 trillion yen. The current postwar record for a bankruptcy by a Japanese manufacturer is held by Panasonic Plasma Display, which had 500 billion yen in liabilities when it was liquidated last year.

Takata's founding family, which controls about 60% of the air bag maker's stock, originally favored an out-of-court settlement with creditors for the core Japanese unit. But even with partial debt forgiveness by some major creditors, the company could have faced bankruptcy eventually owing to damages paid out to air bag victims and other problems.

To prevent this, automaker clients had insisted on a court-mediated process, which would pin down Takata's liabilities and make a recovery more likely. The founding family, including Chairman and CEO Shigehisa Takada, appears to have bowed to the pressure.

Takata holds a roughly 20% share of the world's air bag and seat belt markets. It posted 662.5 billion yen in group sales and a 79.5 billion yen net loss for the year ended in March. Japanese automakers have already accounted for the costs of the ongoing recalls, and would be unlikely to see a significant financial impact from a Takata bankruptcy filing.

(Nikkei)

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