Japan's Urban Fails With Debt Of 255b Yen

Source : The Business Times, August 14, 2008

Property firm cites difficulty in raising finance due to global credit crunch

(TOKYO) Japanese property developer Urban Corp yesterday failed with debt of 255.8 billion yen (S$3.3 billion), caught by the global credit crunch in the biggest collapse by a listed Japanese company in six years.

Worsening problem: The failure of apartment and shopping mall developer Urban is certain to turn away investors who have become increasingly fearful about the financial health of the Japanese property sector

The apartment and shopping mall developer was the latest in a string of Japanese real estate firms to fold as banks rein in lending to small and medium-sized developers seen at risk as the the world's No 2 economy flirts with recession.

Japanese property shares have crunched lower this year as fear of bankruptcy has spread, although the biggest developers with more robust financing have used the tough times as an opportunity to go bargain hunting.

Urban said in a statement that it had had growing difficulty in raising finance since late last year due to the global credit crunch, while a slowing economy saw it struggle to sell properties.

The company said it had sought a new partner to help it through the cash crunch but alliance talks had failed.

Hiroshima-based Urban's shares have lost 95 per cent of their value this year.

Investors have become increasingly fearful about the financial health of the Japanese property sector since developer Suruga Corp fell into bankruptcy in June after it failed to secure new financing from banks.

Tight financing sent fellow developer Zephyr Co to seek court protection last month with US$893 million in debts, prompting fears the problems were spreading.

On top of the financing squeeze, developers have been caught by soaring energy and raw material costs.

Urban's collapse, the largest by a listed Japanese company since financial firm First Credit Corp fell in 2002 with 260.5 billion yen in debt, will turn even more investors off the sector, analysts said.

'Banks seem to be taking a more strict attitude in their lending to property firms. I would not be surprised to see more (collapses),' said Fumiyuki Nakanishi, head of investment information department at SMBC Friend Securities.

'Urban has been said to be a winner in the industry. If today's Wall Street falls, it will be a double whammy to the Tokyo market tomorrow. I think there will be an Urban shock in the market tomorrow,' Mr Nakanishi said.

Urban's shares closed down 1.6 per cent at 62 yen ahead of the announcement, giving it a PBR (price-book value ratio) of 0.13 and a market capitalisation of about 14.3 billion yen. -- Reuters