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Coronavirus

Japan to inject capital into virus-hit companies

Auto, aviation and steel sectors to receive quick cash through subordinated loans

Planes taxi at Haneda Airport in Tokyo.   © Reuters

TOKYO -- The Japanese government will inject cash into large and mid-size corporations that are struggling in the face of the coronavirus, supplementing low-interest loans and subsidies already in place to help save businesses.

The capital injections will be designed as a safety net in case negative impacts from the pandemic drag on or worsen. The idea is to create measures companies can easily take advantage of, so they can receive help quickly.

"We are looking to help industries that face plunging demand, like aviation, automobiles and steel," a government source said. Major sectors, such as the auto supply chain, encompass a range of companies from small businesses to the largest corporations -- all of which would be affected should just one of them fail.

Specifically, the government plans to provide subordinated loans through state-backed institutions like the Development Bank of Japan and the Japan Finance Corp. For companies whose finances have rapidly declined, the purchase of preferred stocks with no voting rights will also be considered. One proposal is to combine preferred stock purchases by the DBJ with a voting stake taken on by the Japan Investment Corp.

Subordinated loans and preferred stocks allow companies to raise capital without a significant increase in outside influence, making them a more palatable option than common stocks. They could also help companies prevent a downgrade to their credit ratings and access additional financing from private-sector banks.

Funding for these measures will be incorporated into the second supplementary budget for fiscal 2020 to be drafted as early as this month. The agencies involved will make necessary preparations by summer.

The government will also tap the Regional Economy Vitalization Corp. of Japan to bolster capital assistance to midtier companies that support regional economies.

Until the new measures are ready, the DBJ and the Shoko Chukin Bank will increase emergency lending to help companies with cash flow.

The government will amend a law allowing it to inject public funds to rescue private-sector financial institutions, extending it beyond the current expiration date of March 2022.

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