2ND LD: Seibu Railway's advisory panel meets to work out reforms.

TOKYO, Nov. 23 Kyodo

(EDS: ADDING COMMENTS, ELEMENTS FROM STORY HEADLINED 'SEIBU RAILWAY GROUP NET LOSS DOUBLES IN 1ST HALF')

A Seibu Railway  Co. group advisory panel held its first meeting Monday to work out a drastic reform plan for the group in the aftermath of a scandal involving the railway operator's false financial statements.

The five-member panel is tasked with compiling plans as early as the end of next January for restoring investor confidence, improving corporate governance and reinforcing financial health in the group's business and operations.

To do so, it is expected to call for drastic reforms to the group from the current structure under which the privately held and unlisted Kokudo Corp. effectively controls the group.

Ken Moroi, an adviser to Taiheiyo Cement Corp., is heading the panel, whose members are outside experts.

The panel may call on Yoshiaki Tsutsumi, who stepped down as Kokudo chairman last month but remains the company's largest shareholder, to sell part or all of his stake, while calling for Seibu Railway to make Kokudo a subsidiary or absorb the company.

''We may call him to provide or release Kokudo shares if necessary,'' Moroi told a press conference after the panel's meeting.

The panel is also likely to advise the group to withdraw from unprofitable businesses if judged necessary.

Toshiyuki Ono, who assumed the presidency of Kokudo on Monday, indicated a decisive break with the former chairman.

''To save the livelihoods of our employees and change the company, I'm willing to do and say anything, even if Mr. Tsutsumi is adverse to it,'' Ono said he had told Tsutsumi on the phone.

At the press conference, Ono said Tsutsumi replied that as former chairman he would not interfere in corporate management as he has already stepped down.

Ono, former executive director of Kokudo and general manager of Sapporo Prince Hotel, and Terumasa Koyanagi, president of Seibu Railway, also took part in the advisory panel's first meeting.

Moroi said the panel set up two teams -- one to examine how to improve the legal compliance of the group and the other to study how to restructure the group.

Asked about the possibility of selling the Seibu Lions professional baseball club, Moroi said, ''Some people want the group to keep it somehow. If the group continues to hold it, it will be necessary to make efforts to reduce losses. It is premature to draw a conclusion.''

Meanwhile, Ono said, ''I personally want to keep it.''

The panel plans to meet once a week. The next meeting is scheduled for Friday.

The group has come under fire since Oct. 13, when the railway operator said it had underreported the ratio of stakes held by major shareholders. The practice allowed it effectively to evade a delisting since listing requirements prohibit major shareholders from owning more than an 80 percent stake in a company.

Tsutsumi stepped down as Kokudo chairman and from all the posts he held in the Seibu Railway group the same day.

In-house investigations found the practice began before 1957, the railway operator said later.

Before the announcement, Kokudo sold some Seibu Railway shares it had held off-market in August and September to about 70 companies without informing them of the equity ownership conditions in the railway company, drawing criticism that the action may have constituted insider trading.

After Seibu Railway admitted to falsifying its financial statements, the value of its shares plunged, causing considerable latent losses to purchasers. Most of the 70 firms are asking Kokudo to buy back the shares or seeking other reimbursement measures, Kokudo officials said.

The Tokyo Stock Exchange announced earlier this month it will delist Seibu Railway shares from the First Section on Dec. 17, as the bourse had determined that the railway operator intentionally issued false financial statements, hurting investor confidence in the securities market.

Also on Monday, Seibu Railway said its group net loss for the first half of fiscal 2004 doubled from a year before to 1.01 billion yen due mainly to about 6.4 billion yen in appraisal losses booked on properties held for sale.

Group revenues sagged 1.0 percent to 203.40 billion yen in the April-September period. The company blamed the large number of typhoons that hit Japan and the summer heat waves, which discouraged potential customers from going on outings using its railways, for the weaker revenues.

But Seibu Railway boosted its group pretax profit by 54.9 percent to 5.71 billion yen by cutting railway business costs and interest payments on debts and by promoting sales of properties with higher profit margins.