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October 20, 2009

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Creditors of JAL nix restructure blueprint

CREDITORS of Japan Airlines Corp have rejected the struggling carrier's restructuring plan and are pushing for a cut in debt waivers and details of the use of state funds, a source familiar with the matter said.

Shares in Asia's biggest airline by revenue jumped nearly 12 percent yesterday after losing more than a quarter of their value last week, as investors reckoned the fall was overdone.

JAL's benchmark spreads in the credit derivatives market were at extreme levels, suggesting market players were bracing for a debt restructuring that could be deemed a "credit event" - leading to a payout on the insurance-type contracts offering protection against such restructurings.

The airline, under the supervision of a government-appointed task force, has asked banks for 300 billion yen (US$3.3 billion) in debt waivers and debt-for-equity swaps, sources familiar with the matter told Reuters last week.

Creditors rejected that plan on Sunday and requested a new one with less debt forgiveness as well as clarity on how the airline will cut pension obligations and how much the state will provide in capital and loans, according to a source.

A JAL spokesman declined to comment on whether its creditors had rejected the plan. JAL shares rose 11.9 percent to 113 yen, while the Nikkei average eased 0.2 percent. More than 118 million JAL shares changed hands, 11 times the daily average .

"Investors are just buying back the stock after it was oversold last week," said Takahiko Kishi, an analyst covering JAL at Mizuho Investors Securities.

JAL is headed for its second straight annual loss, weighed down by US$15 billion in debt and a bloated cost base that makes it less efficient than rival All Nippon Airways Co.


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