Bailout request rebuffed: Until when will Mitsui O.S.K. give Daiichi Chuo the cold shoulder?

Bailout request rebuffed: Until when will Mitsui O.S.K. give Daiichi Chuo the cold shoulder?

TOKYO — With Daiichi Chuo Kisen Kaisha filing for bankruptcy protection this week, all eyes are on whether Mitsui O.S.K. Lines, a top shareholder with a roughly 16% stake, will help the struggling carrier right the ship.

     “We asked [Mitsui O.S.K.] to help us if they can, but they said ‘we can’t do any more,'” Daiichi Chuo President Masakazu Yakushiji told a news conference Tuesday, saying he had approached Mitsui O.S.K. Chairman Koichi Muto and President Junichiro Ikeda for financial support. Yakushiji himself was previously vice chairman at Mitsui O.S.K. and knows the current management there well. But his request was quickly turned down.

     For larger peer Mitsui O.S.K., Daiichi Chuo is an equity-method affiliate and not a subsidiary. In the bulk shipping business, the two have even been rivals. Mitsui O.S.K. has continued to dispatch personnel to take the helm of Daiichi Chuo. But this was upon the affiliate’s request, a Mitsui O.S.K. official said. Mitsui O.S.K. has looked on the affiliate as an autonomous company.

     Still, Mitsui O.S.K. has offered to help Daiichi Chuo previously. It subscribed to the affiliate’s offerings of new stock twice in 2013, acquiring some 30 billion yen ($248 million) in preferred shares to help with financing. This payment weighed heavily on Mitsui O.S.K., which logged a record 178.8 billion yen net loss for fiscal 2012. When senior Mitsui O.S.K. executives say the company has done what it can as a top shareholder, they likely are not exaggerating.

     Daiichi Chuo’s collapse will deal a severe blow to Mitsui O.S.K. The value of the preferred shares it bought will decline steeply with the bankruptcy protection proceedings. Together with the valuation loss on common shares, Mitsui O.S.K. is expected to incur an extraordinary loss of some 25 billion yen for the six months ended Wednesday. Given that it had projected a 20 billion yen net profit for the half-year term, even if it sold assets to set off the loss a downward revision would be unavoidable.

     Fully aware of this, Mitsui O.S.K. still did not lend a helping hand because it has its own problems to contend with. The shipper is having a tough time this fiscal year, with the container vessel business staying in the red for a fifth term amid a South American slump and the effects of a ferry fire off Japan’s northernmost island of Hokkaido still lingering. Maritime shipping has slowed globally amid the weakening Chinese economy, and the outlook remains gloomy. Given its deteriorating financial health, Mitsui O.S.K. cannot afford to bail out an affiliate.

     But Daiichi Chuo creditors that lease vessels are certain to hold Mitsui O.S.K. “morally accountable.” Former Daiichi Chuo President Saburo Koide, who was previously with Mitsui O.S.K., carried out a fleet expansion that was too aggressive for the midsize shipper. Having overseen active investment in bulk carriers at Mitsui O.S.K., Koide pushed the same strategy at Daiichi Chuo, and this made the company’s management base extremely susceptible to the shipping industry’s ups and downs. Yakushiji, the current president, was handed a directive to rebuild but the shipper failed to find ways to bounce back. It is no wonder business partners deem Mitsui O.S.K. and Daiichi Chuo a single entity.

     “Former Mitsui O.S.K. officials who came to Daiichi Chuo are to be blamed for the latter’s collapse,” said the president of a small vessel owner. “Mitsui O.S.K. has dispatched not only presidents but directors and managers, so the company can’t say it has no business in the bankruptcy.”

Bailout request rebuffed: Until when will Mitsui O.S.K. give Daiichi Chuo the cold shoulder?