Japan prepares cash injections for small, virus-hit companies

TOKYO — Japan’s government will set up a public-private fund to inject capital into small to medium-size companies whose finances have been decimated by the coronavirus pandemic, sources told Nikkei.

Tokyo plans to allocate over 50 billion yen ($465 million) in the draft second supplementary budget for fiscal 2020, through next March, to be submitted to the Diet in June. It plans to invest in several hundreds of companies.

The arrangement is aimed at supporting small businesses in the manufacturing, services and other industries that are considered indispensable to regional economies.

The government will also call on private-sector financial institutions to offer loans.

The second supplementary budget will include allocations for subsidies to support universities that cut tuition fees.

The plan is to invest a minimum of several tens of millions of yen per company and to cover a broad range of businesses, including component makers and other manufacturers, restaurant operators as well as nursing care and welfare service providers. Support measures will include debt purchases and debt-to-equity swaps in which portions of companies’ outstanding loans are exchanged for equity.

Support will be provided through a fund to be set up in August or September. The government-affiliated Organization for Small & Medium Enterprises and Regional Innovation, also known as SME Support, will invest in the fund. The government will solicit investments from private-sector financial institutions, aiming to establish an ongoing support system in case a second wave of coronavirus infections sweeps through the country.

As small and medium-size enterprises often have inadequate capital cushions, there have been calls to support them with cash injections, which, unlike loans, do not require repayment. The government hopes these companies will be able to obtain additional loans from private lenders after their finances are stabilized through the latest support scheme.

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