Money Matters, Simplified.
Aiful wins creditors' support on debt repayment
by Jaspreet Virk - December 24, 2009 - comments
All 65 creditors have agreed to Aiful proposal to delay the repayment of debts amounting to 279.1 billion yen or $3.1 billion
New York, December 24 -- Aiful, Japan’s consumer finance company, won the support of all its creditors, thus averting potential bankruptcy.
In September, Aiful, Japan’s fourth largest consumer finance company, had applied for alternative debt resolution to seek the consent of the creditors for rescheduling repayments of loans.
The company met the creditor three times and finally on Thursday it managed to get the backing of all 65 creditors, who agreed to Aiful proposal to delay the repayment of debts amounting to 279.1 billion yen or $3.1 billion.
Kyoto-based Aiful’s major creditors include Sumitomo Trust and Banking, Aozora Bank, and Life Co Ltd.
Company’s restructuring plans
The support of the creditors was necessary to avoid bankruptcy and restructure the debt-laden company.
In order to restructure the company, Aiful has reduced the number of its branches to 675 from 915.
Nearly 2,100 employees of the company have applied for early retirement scheme, thus leading to approximately 50 percent cut in workforce.
Problems still linger
Though support from the creditors has given Aiful the much required lifeline, problems still remain.
Ehsan Syed at Fitch Ratings in Tokyo told BBC News, “Consumer finance firms [not affiliated with banks] lack the financial flexibility to face their big challenges - elevated levels of interest repayment, and shrinking earnings assets and lower interest spreads."
Aiful has been hit hard by a legislation introduced in 2006 that has cut the maximum interest rate on consumer loans.
The law will be fully effective from June 2010, and it will put a limit to the maximum amount that can be borrowed from finance companies.