Japanese supermarket operator Mycal is revising its restructuring plans. The troubled firm’s debt reduction program ran into trouble after it encountered difficulties securitizing its outlets. Heavy expansion in the 90s left Mycal extremely vulnerable to a downturn in demand and the company still hasn’t got things right. Whatever the revised plans are, it will no doubt be a tough road back to establishing investor confidence.
Things just aren’t going well for Japanese retailer Mycal. Plans to drag the long-suffering business into order are going badly and investors have lost faith in the company’s ability to turn itself around. Earlier this month, Mycal’s share price dropped to Y83, its lowest ever. On a positive note, Mycal shares moved up considerably since then, as the company put together a revised version of its restructuring plan, originally announced earlier this year, with the aid of Dai-Ichi Kangyo Bank.
Mycal will embark on a three-year plan to slash its debts. In February, the group had interest-bearing debts totaling $9.6 billion following an unsuccessful expansion. The original plan was to cut this to $7.6 billion by the end of this month, $6.9 billion by the end of February 2003 and $6.3 billion by the end of February 2004. Mycal planned to achieve this using a three-pronged approach: selling shares in subsidiaries, securitizing outlets and closing 50 loss-making stores.
Although Mycal had hoped to raise $1 billion by the end of this month through outlet securitization, the company has fallen short of this goal. The current state of the market and prevailing attitudes among investors towards Mycal resulted in insufficient demand to make the securitization feasible for the moment.
Failures aside, Mycal must pursue all available avenues to reducing its debt. Although it will take time to reach the first hurdle of $7.6 billion, Mycal should be able to reach it in the first half of next year. Plans to close unprofitable stores are likely to be moved up a notch and the sale of shares in subsidiaries may also have to be accelerated, or Mycal risks losing any remaining investor interest. Mycal should also consider turning its attention to its more profitable mass-retail store Saty and clothes shop Vivre, possibly forming external alliances to increase revenue.
Yet whatever revisions Mycal makes to its restructuring plans, the company should realize that it takes more than just words to make a difference to investor confidence.
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