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Japan's trading houses to step up asset sale to defy resource slump
[TOKYO] Faced with mounting writedowns on energy and metals assets, Japan's trading houses are looking to step up the sale of assets to offset weaker income from resource businesses and fund shareholder returns, while reining in investment.
Like global oil majors and miners, Japan's trading companies have been caught flat-footed by the rout in commodities, with oil down more than 50 per cent since mid-2014.
For the last quarter, the top five trading firms all booked impairment losses on their resource assets, mainly oil and gas.
The 48 billion yen (US$409.24 million) in writedowns on its energy assets forced Mitsui & Co to cut its full-year net profit forecast by 16 per cent.
"We'll be more strict on investment discipline," Mitsui Chief Financial Officer (CFO) Joji Okada told an analyst teleconference this week.
"We hope to accelerate asset recycle to one trillion yen for the three years (to March 2017), above our target of 700-900 billion yen," he said.
Smaller peer Marubeni Corp, which halved its annual profit forecast last month due to hefty writedowns on its energy and metal assets, plans to slow investment next year.
"For 2014-16 business year, we had planned to put priority on investment to drive growth, but we now need to focus on financial discipline by keeping investment tight," Marubeni CFO Yukihiko Matsumura said.
After going on a spending spree during the global commodities boom, trading houses have stretched balance sheets.
"They need to stop and think over their investment strategies," Nomura Securities analyst Yasuhiro Narita said.
"Trading companies will be selling off more assets next business year to offset lower cash in-flow from resource assets while squeezing fresh investments."
Sumitomo Corp, which warned of further writedown this week, following its surprise forecast last September of a 240 billion yen impairment loss, is currently reviewing its investment strategy and will unveil a new policy in March.
Itochu, which recently announced it planned to invest 600 billion yen in Citic Ltd, part of China's biggest conglomerate, will be "more selective" on investment, Chief Financial Officer (CFO) Tadayuki Seki said.
"The only company which can keep their foot on the accelerator is Mitsubishi which retained healthy earnings and cash flow," Nomura's Mr Narita said.
Industry leader Mitsubishi Corp maintained its annual profit guidance despite an impairment loss of 35 billion yen on its oil and gas assets.
CFO Shuma Uchino confirmed that the company's investment stance would remain unchanged.