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Finance

Japan's New Horizon to buy debt of pandemic-hit companies

Regional banks face surge of bad loans as economy struggles with COVID

New Horizon Capital will establish a fund to buy the NPLs of struggling companies, a move that will give them room to reconstruct their businesses. (Photo courtesy of the company)

TOKYO -- Tokyo-based private equity firm New Horizon Capital will establish a fund to support the reconstruction of businesses by purchasing nonperforming loans from financial institutions, Nikkei has learned, as the pandemic continues to wallop the economy.

New Horizon will set up a new company, tentatively named Post Corona Recovery or PCR, that will manage the NPL fund. PCR is aiming to raise 20 billion yen ($192 million) to 30 billion yen mainly from regional banks to buy the NPLs of struggling companies at market price from creditors. It expects to purchase NPLs of around 100 billion yen in book value.

The fund will help to improve companies' profitability by encouraging them to sell underperforming assets and noncore businesses. If companies' reconstruction progress, the debt will be assumed by the fund. New Horizon will also expect creditors, or the original lenders, to accept companies' refinancing needs.

The coronavirus pandemic has led to a surge in bank borrowing as companies took out emergency loans to stay afloat. As such, many overextended companies have not been able to take on any more debt to invest and grow. This is where PCR can help by taking over the NPLs of these companies and giving them room to borrow more for growth. Banks will also benefit from recovering some of their capital and receive tax credits.

New Horizon is the successor organization to Phoenix Capital, an independent fund management company founded in 2002. The company was involved in the restructuring of Mitsubishi Motors and Tokyu Construction. In 2002, New Horizon established the Japan Revival Fund with MUFG Bank and Sumitomo Mitsui Banking Corp. to dispose of NPLs for major banks.

This sector is expanding. Australia's Pepper Group, owned by U.S. private equity giant KKR has entered the investment business focusing on NPLs in Japan. Pepper Group has already acquired Tokyo-based collection agency MC Group and will be entrusted with the collection of receivables from foreign funds.

Domestic investments in NPLs took off in Japan in the late 1990s, years after the bursting of the bubble economy, but have declined since then.

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