Isuzu gets lifeline from GM, banks

TOKYO, Aug 14 Edwina Gibbs writing for Reuters reported that debt-strapped Japanese truckmaker Isuzu Motors Ltd said on Wednesday its banks and top shareholder General Motors Corp would throw it a lifeline of at least 160 billion yen ($1.35 billion). In return, Isuzu vowed to slash its debt and return to profit over the next two years and to accept a GM official as a company vice president.

As part of the deal, GM's current 49-percent shareholding in Isuzu will be cancelled and it will pay 10 billion yen for a 12 percent stake in a recapitalised company.

"There is a limit to what we can do on our own," President Yoshinori Ida also told a news conference. "This is the way it has to be."

Included in the deal was a 100 billion yen debt-to-equity swap by the truckmaker's major creditor banks, with most of the amount to be covered by Mizuho Financial Group. The truckmaker will also seek additional funds for further restructuring from banks amounting to more than 100 billion yen.

The deal represents a sharp turnaround for GM, which had repeatedly said it would not inject new funds into its troubled partner.

GM's total expenditure would come to 60 billion yen, with 50 billion yen going towards buying a 60-percent stake in Isuzu's Polish diesel engine unit and lifting to 60 percent its 40-percent holding in Isuzu's U.S. diesel engine unit.

Some of the money would be spent acquiring the rights to Isuzu's research and development technology.

"The initiatives would provide Isuzu additional liquidity, accelerate Isuzu's recovery and help establish a foundation for their future business structure," Fritz Henderson, president of GM Asia Pacific, said in a statement.

"For GM, the proposals allow us to take key technologies that are important to GM."

The U.S. auto giant, which will remain Isuzu's top shareholder, had already written down its investment in Isuzu to zero in the second quarter of 2001.

NO NEW STRATEGY

Auto analyst Stephen Usher at JP Morgan said the plan, while highlighting Isuzu's financial difficulties, did not seem to break new ground in strategy -- other than having GM pay more for pretty much the same goods.

"It's not a new plan, it's an old plan in new clothes," he said. "The difference is that the new debt reduction anticipates little contribution from Isuzu itself."

The announcement followed Japanese media reports that an aid package had been arranged. Those reports sparked a rally in Isuzu's shares, which last changed hands at 82 yen before they were suspended by the Tokyo Stock Exchange pending further news.

The stock jumped as much as 25 percent or 17 yen to 86 yen in afternoon trade.

Mizuho Corporate Bank said it was planning to support the new plan. It has about 100 billion yen in loans outstanding to Isuzu and the group holds a four percent stake in the company.

All four of Japan's truckmakers have been hurt by a decade-long slump in domestic demand, but Isuzu is considered one of the weakest, hit hard by its money-losing North American unit and unable to generate significant profits from its vehicles.

Last year, Isuzu embarked on a drastic restructuring that included the sale of its headquarters building, a plant closure and a planned 34 percent reduction in its work force.

Already, 15 percent of the work force have gone.

Other measures in the revamped scheme included a speeding up of headcount reduction with the truckmaker offering early retirement to 3,700 staff members this business year.

It has begun cutting output of its North American sports utility vehicle operations by half to an annual 40,000 vehicles.

The truckmaker now aims to post a net profit of 50 billion yen and cut interest-bearing debt, excluding debt at its financial units, to 500 billion yen from a current 678 billion yen in the year to March 2005. Even with the new lifeline, Isuzu remained a speculative stock and the plan would not solve the longstanding problem of too many truckmakers in Japan's shrinking market, some institutional investors said.

"This is great for Isuzu, good for them. But it's not so good for the industry as a whole," said Hideo Ueki, chief investment officer at UBS Asset Management Japan.

Isuzu reported its third straight annual net loss in the year that ended in March, although it was able to deliver 15.3 billion yen in operating profit, its first in three years.