Debt Plan for Aiful

Aiful is the fourth-largest consumer-finance firm in Japan, and it has been in trouble of late, not only as a result of the general global economic downturn, but because Japan has been tightening the regulations concerning consumer finance.

It now appears though that Aiful has some good news to celebrate this holiday season. It will not have to liquidate, because its own creditors have agreed to a debt rescheduling plan through an out-of-court mediation. Here's the link to a PDF of the company's announcement.

The new regulations that led to this point were inspired, it appears, by a decision of Japan's Supreme Court in January 2006 see details here.

The short version is this: The high court ruled that consumer loan interest rates in excess of 20% are illegal, under a 1954 statute. In response, the couyntry's legislature passed the Money Lending Business Law, which endorsed the 20% cap, but allowed for a transition period during which companies could continue to charge more than 20%, although only in the expectation that this was breathing-room, like the yellow traffic light you see before it turns red.

Anyway, the red light is about to come on -- and this situation is chasing out some of the foreign-based consumer lending companies that had been doing business in Japan, as well as throwing a scare into the home-grown companies like Aiful.

Troubles at TCI

The Children's Investment Fund Management LLP, a high-profile hedge fund which we have encountered before in this blog, is apparently discussing with investors the possibility of offeringt hem more attractive terms, and even returning to them some cash, given their unhappiness over its recent poor performance.

We've encountered TCI fairly often in the brief history of this blog. Its proxy fight to get candidates on the board of CSX led to some intellectually fascinating litigation.

And its adventures in Japan led to a head-on clash with that country's government.

But investors don't care about ntellectual challenge or the sense of multi-national adventure. They're in it, believe it or not, for the money. And since TCI has not been generating a lot of they, they have to mollify.

Since it is Sunday, and I have to go work on my yard, I'll just send you over to Bloomberg for more.

TCI Goes Short on Japan

I've written of TCI before here. In a post last May for example, I mentioned TCI's proxy contest among shareholders of the Japanese power company J-Power. The management prevailed against TCI in that contest, largely because Japan's government came to their aid. TCI sold its stake in J-Power in October, taking a US$130 million loss.

Now I read that TCI has changed its tack as to its Japanese positions. In order to be a corporate activist, an investor essentially has to be long -- has to own voting equity. But TCI has switched (according to a recent Bloomberg story) to a predominantly short strategy in regards Japan.

TCI has about US$1.2 billion in cumulative short positions in 13 Japanese stocks, including some of that country's biggest names: Toshiba Corp.; Sharp Corp.; Mizuho Financial; Sony Corp., and so forth.

Its short position in Toshiba was worth 39.5 billion yen (US$396 million) at the close of business Wednesday, April 1.

In October of last year the government imposed new requirements on short selling, including disclosure rules, so this data is now available through the Tokyo Stock Exchange's website, though as I say I've lazily taken it from Bloomberg's story.

Here are links, first to Bloomberg;

then to the TSE's English-language page.

three brief items

1. Routine votes from brokers

The Securities and Exchange Commission has recently put out for comment a proposed amendment to NYSE rule 452. This rule allows brokers to cast votes on certain routine matters on a client/investor's behalf, if that investor (the beneficial owner) has not provided specific instructions to the broker at least 10 days before a scheduled meeting.

The significance of the practice is that it helps companies meet quorum requirements for those boring issues real people don't care about.

But of course there is lots of room for debate over what should or shouldn't count as a routine issue for this purpose. I hope to have something more to say here along these lines next week.

2. Orthofix resisting Ramius nominees

Ramius LLC and affiliated entities are trying to put three nominees on the board of the orthopedics-product company Orthofix. The nominees are: J. Michael Egan, Peter A. Feld and Charles T. Orsatti. If successful, they will replace current Chairman of the Board James F. Gero, and directors Peter J. Hewett and Walter P. Von Wartburg.

Orthofix is resisting, and the matter will presumably be resolved by or at a special meeting of the company's shareholders on April 2.

Proxy Governance Inc. has issued its own report on this contest, in which it said: "The problem with the dissident campaign is not an inability to evaluate what went wrong, but the profound absense of a plan to effect a credible recovery."

Orthofix is of course ensuring that everybody knows that PGI has said this.

3. CV Therapeutics takeover bid ends

Astellas Pharma, a Japanese company, announced last week the end of its hostile bid for CV Therapeutics. It had made a tender offer of $16 a share.

Astellas was outbid by Gilead Sciences, and Astellas says that it doesn't see value for its shareholders in trying to top Gilead's offer of $20 a share.

My impression is that there is a lot of dry powder out there, especially in the far East. Companies have responded to the crises of the last year and a half by selling assets and holding cash. Now they're tire of cash. Cash is boring. They want to put it to work. We may see a lot of merger and acquisition activity and even some bidding wars coming down the pike, and this one may look like a harbinger.

Gilead and CV are both California-based companies, so this is a neighbor-buys-neighbor story. But not every Far Eastern bidder will withdraw with such quiet grace.

Proxy Fight at J-Power

The hedge fund TCI now says that it will wage a proxy contest among the shareholders of the Japanese electricity wholesaler J-Power, demanding higher dividends and a limit on cross-shareholdings.

Last month, TCI sought permission from the government of the country to raise its stake in J-Power to 20%. The government denied that request as I noted at the time, so the activist fund still has just below the 10% limit.

J-Power's annual meeting is set for June 26. TCI says that it plans to "expose serious conflict of interest of supplier and cross-shareholders" between now and then.

Cross-shareholding is a major corporate-governance issue that we haven't yet discussed on this blog. It refers to the practice whereby two corporations may hold shares in each other, therebvy entrenching the management of each against possible dissidents. The practice is quite common in Japan.

Should we stigmatize pressure upon Japanese countries of this sort, brought to bear by a London-based fund, as neo-imperialist? I don't see how that assists understanding, although those who wish may use the label at their pleasure. The world is getting to be a smaller place, and Japan of all countries knows the impossibility of autarky.