Daiei's rescue plan was well received - at first
Daiei's shares soared by more than 70% last week, as the company unveiled a three-year plan to halve its interest-bearing debt to under 1 trillion yen (£5.2bn; $7.5bn) by February 2005.
It plans to close about 50 loss-making stores and cut about 5,000 jobs from its group workforce over the same period.
But while the broad details of the plan met with investor approval, some have been taken aback by the company's plans to propose a capital reduction of 50% of ordinary shares to shareholders later this year.
"While Daiei's plan should help relieve concerns about credit risk in the market, the capital reduction on common shares was not completely factored in," said Hidenori Kawasaki, general manager of the equities trading division at Kokusai Securities.
Credit check
Another blow came from a further downgrade by rating agency Standard & Poor's, which has slashed the company's corporate credit rating for the third time since October.
Rival agency Moody's kept Daiei's ratings steady, but also warned that the rescue plan might fall short.
"The measures may not be sufficient for the company to secure viable long-term operating competitiveness and financial flexibility," Moody's said in a release.
On a broader front, the Daiei rescue plan is being seen as an indication that the Japanese government is still unwilling to contemplate the sternest measures to tackle ailing companies.
Without a radical solution to corporate indebtedness, analysts fear that the mountain of bad debt could prove fatal for the banking sector.