Daiei could get debt relief

Daiei is one of Japan's largest retailers

Shares in the Japanese supermarket chain Daiei have jumped after a newspaper report said four of its creditors are considering ways of easing its debt burden.

The Mainichi Shimbun daily said that Daiei's four main creditor banks were mulling debt forgiveness through a debt-for-equity swap and other means of financial support.

The report prompted a 40% jump in the retailer's share price.

Daiei is estimated to have debts of about 2.31 trillion yen ($17.5bn) and its share price has fallen in recent months as investors worried it could go the same way as rival chain Mycal.

In September last year, Mycal - which was Japan's fourth largest supermarket chain - filed for court protection from creditors with debts of 1.7 trillion yen.

Business plan

"We have begun talks with our four main creditor banks regarding a new three-year business plan, but nothing specific has been decided at this time," Daiei said in a statement.

The company is to give details of a new business plan next month which is aimed at cutting the firm's debt burden to less than one trillion yen over five years.

The plan is seen as key to whether debt forgiveness will work.

"Daiei must convince (investors) that a reduction in its debt burden would firmly pave the path for steady recovery. Otherwise, the debt waiver would have adverse implications for banks and their efforts to reduce problem loans," said Naoko Nemoto at Standard & Poor's.

Some analysts said investors had over-reacted to the newspaper report.

"I'm not so sure the degree of the rise that Daiei's stock is getting from this report is justified considering that the amount of forgiveness represents a small part of its overall debt," said Minoru Tada at World Nichiei Securities.