Bloomberg News

Japan Plans Baht Loans to Aid Companies Hurt by Thai Floods

November 02, 2011

(Updates with Bank of Thailand comment in sixth paragraph.)

Oct. 25 (Bloomberg) -- The Japanese government is preparing a loan program to aid companies operating in Thailand as the worst flooding in 50 years forces Toyota Motor Corp. and Nissan Motor Co. to shut factories.

Loans would be backed by Japanese government bonds and the Bank of Japan would be involved in disbursing the baht funds in the event of cash shortages, Tsutomu Okubo, a lawmaker and deputy policy chief for the ruling Democratic Party of Japan said in an interview in Tokyo yesterday. The BOJ said today it is working with Thailand’s central bank to arrange the program.

Moody’s Investors Service said the flooding in Thailand is credit negative for Japanese automakers as producers including Toyota, Nissan and Honda Motor Co. lose output of 6,000 vehicles a day. The disaster may weigh on Japan’s recovery from March’s earthquake as it also grapples with the global slowdown and a yen trading near a postwar high.

“I’m concerned about the impact of the heavy flooding,” said Yoshimasa Maruyama, a chief economist at Itochu Corp. in Tokyo. “This could have a significant impact as it forces factories to shut for a prolonged period.”

Under the plan, Japanese banks would borrow baht from Thailand’s central bank and lend to Japanese companies operating in the country, Okubo said. The banks would provide bonds as collateral for the baht funds, he said. Details of the program are being finalized, the BOJ said in statement.

Central Banks

Thailand is also in talks on similar programs with the U.S. Federal Reserve, the Bank of England and Germany’s Bundesbank, Bank of Thailand Governor Prasarn Trairatvorakul said in Bangkok today.

State-run lender Japan Bank for International Cooperation is also planning to back loans to the nation’s companies operating in Thailand, Chief Cabinet Secretary Osamu Fujimura said at a press conference in Tokyo today.

Companies including Toyota are facing the worst supply- chain disruptions since the record earthquake that struck Japan. Thailand makes about a quarter of the world’s hard-disk drives and serves as a production hub for Japanese carmakers and electronics firms.

“The rising flood waters have hurt all Japanese auto manufacturers and many electronics firms, either directly at flooded plants or via affected parts suppliers,” Moody’s said in its Weekly Credit Outlook. The floods will cost Thailand 2 percent of its gross domestic product this year, it said.

Flood Damage

The damage caused by the floods cost as much as 120 billion baht ($3.9 billion), Prasarn said Oct. 14. Toyota said it is extending a production halt at its three plants in Thailand until Oct. 28 following disruptions in the supply of parts. Nissan has also said it is extending plant closures through that date.

Japanese manufacturers are also contending with a yen near a post-World War II record against the dollar that is crimping profits. Japanese Finance Minister Jun Azumi reiterated today he is ready to take “bold action” in the currency market to stop a yen appreciation as overseas demand slows.

The yen traded at 76.12 against the dollar at 6:00 p.m. in Tokyo. It rose to a postwar record of 75.82 on Oct. 21, and has strengthened more than 6 percent against its U.S. counterpart this year.

--With assistance from Takashi Hirokawa in Tokyo and Supunnabul Suwannakij in Bangkok. Editors: Lily Nonomiya, Ken McCallum

To contact the reporters on this story: Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Ken McCallum at kmccallum4@bloomberg.net


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