Japanese bulker operator Daiichi Chuo Kisen Kaisha filed for bankruptcy protection in Tokyo District Court on 29 September, ending weeks of speculation over its financial health.
The company, which owns 89 ships, said it has liabilities totalling JPY177 billion (USD1.47 billion) against JPY153 billion of assets as at 31 March.
Daiichi Chuo Kisen Kaisha, established in 1960, began expanding its fleet in 2006 as China’s economy expanded and the country developed what appeared to be an insatiable appetite for raw materials.
Initially, that strategy worked and Daiichi Chuo recorded its highest-ever profits in fiscal 2007.
However, the global financial crisis in 2008 changed the company’s fortunes and it never quite recovered.
Explaining its decision to seek financial rehabilitation in an eight-page statement, Daiichi Chuo Kisen Kaisha said, “After 2008, we cancelled contracts for chartered-in ships where the fees were high. But China’s economic slowdown and the large amount of new bulkers entering the global fleet plunged the shipping market into an unprecedented period of stagnation. It has become difficult to continue doing business.”
As the company struggled in the early 2010s, Japan’s biggest shipping company, Mitsui OSK Lines (MOL), became its major shareholder in 2013.
That resulted in MOL director Masakazu Yakushiji becoming Daiichi Chuo’s president in the same year.
Despite attempts to boost its cash flow through ship sales and renegotiated fees for chartered-in tonnage, Daiichi Chuo never managed to turn things around and recorded four consecutive annual losses.
The Baltic Dry Index’s deterioration to a historic low in February only exacerbated Daiichi Chuo’s decline.
Daiichi Chuo has pledged to revive its business under the courts.
“From the bottom of my heart, I apologise to our creditors, shareholders, and other company officials for causing tremendous inconvenience to everyone,” Yakushiji said. “In the future, under the supervision of the court and trustees, we will commit ourselves to regenerating the business.”
Daiichi Chuo’s shares, which closed at JPY28 on 28 September, have been suspended from trading on the Tokyo Stock Exchange.
Listed Japanese shipping companies’ stocks were battered by Daiichi Chuo’s application for bankruptcy protection.
MOL, being Daiichi Chuo’s major shareholder, was the most affected, with its stocks closing 7.4% lower at JPY288.
MOL announced that due to Daiichi Chuo’s financial situation, it expects an extraordinary loss of JPY25 billion for the fiscal year that ends 31 March 2016. It said it would examine the impact of this on its business performance.
The stocks of Japan’s No 2 line, Nippon Yusen Kaisha, closed 6.87% lower at JPY271, while stocks of the country’s third-biggest shipping company, Kawasaki Kisen Kaisha, closed 4.4% lower at JPY258.
Daiichi Chuo’s predicament is a rare case of a listed corporate failure.