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Public land developers hold 2.5 tril. yen in bad assets: study.

TOKYO, April 25 Kyodo

An academic research group has found that about 700 prefectural and municipal land development entities nationwide held a total of some 2.5 trillion yen in nonperforming assets at the end of fiscal 2001, members said Sunday.

The assets, including hidden losses from lower land prices and accumulated interest on borrowings, will likely undermine the financial standings of local governments that invest in the public land developers and provide them with loan guarantees, analysts said.

According to group member Nobuo Akai, a professor at the University of Hyogo, it is the first time that a group has estimated and compiled nonperforming asset data at nationwide public land developers.

The group will announce its findings at a conference on local economics on May 22 in Shiga Prefecture.

The group also found that the bad assets increased from fiscal 2000 despite efforts by local governments to improve the financial shape of the land developers through such measures as land sales.

''Given that land prices remain on the decline, nonperforming assets may have either leveled off or risen since then,'' Akai said.

Public land developers nationwide possessed about 28,000 hectares of land at the end of fiscal 2001, with a combined book value of 7.2 trillion yen.

But the value they booked is over-assessed because interest on borrowings to buy the land are included on the top of the actual land-purchase prices.

Against this backdrop, the group estimated the market value of the land valued in book terms at 6.7 trillion yen by roughly 700 public entities, about 93% of the overall book value of public developers nationwide, and came up with the amount of nonperforming assets.

Latent losses on lower land prices came to 1.4 trillion yen, and accumulated interest totaled 1.1 trillion yen, the group said, thus concluding that the market value was 4.2 trillion yen, or 60% of the book value.

Even if the land is sold, the developers will incur a combined net loss of 2.5 trillion yen, the gap between the market and book values.
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Publication:Japan Weekly Monitor
Date:Apr 26, 2004
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