Sumitomo Mitsui Banking Corp. is considering providing Arai-Gumi Ltd., a medium-size construction company, with a bailout worth billions of yen, sources close to the deal said Friday.
According to the sources, the rescue will center on a debt waiver and may include a debt-for-equity swap. A spokesman for Arai-Gumi, however, denied that any such arrangement is being discussed.
Arai-Gumi, based in Nishinomiya, Hyogo Prefecture, is saddled with about 100 billion yen in interest-bearing debts, including 70 billion yen to Sumitomo Mitsui. The bank has deemed it necessary to extend financial assistance to Arai-Gumi to help the firm dispose of its latent losses on real estate holdings and prevent it from falling into negative net worth, the sources said.
Arai-Gumi, listed on the first section of the Tokyo Stock Exchange, aggressively developed golf courses during the late 1980s.
When the bubble burst more than 10 years ago, land prices plunged and left the firm with massive holdings of nonperforming assets.
The burst of the bubble economy also devastated Arai-Gumi's mainstay condominium business, causing it to suffer net losses for six years in a row beginning in fiscal 1996.
Sumitomo Mitsui has sent executives to Arai-Gumi to help reconstruct its business.
The Tokyo Stock Exchange and the Osaka Securities Exchange temporarily suspended trading in the company's shares Friday to allow investors time to digest the news.