The placement to Shandong Ruyi and life under a foreign parent (2010)

The author’s view

“Including the head-office building, everything saleable has already been sold.” In that condition there was very little room to choose a counterparty. Even so, Kitabata Minoru picked an operating company rather than an investment fund and attached a five-year lock-up on the shares — a partner to build Chinese selling floors with, not one to inject capital and exit in a few years. As a judgement made at the time it was coherent, and the fact that Shandong Ruyi was regarded by the Chinese government as a model enterprise plainly supported it.

The miscalculation was that the party meant to provide support became heavy itself. Shandong Ruyi spent enormous sums on acquisitions, jammed its own funding, and in 2019 could not pay ¥5.3bn owed by a subsidiary. Once a jointly liable party declines to honour its guarantee, there is nothing left for the other side to play. Buying time with someone else’s capital assumes that the seller of that time stays solvent. After this ending, one cannot say that choosing an operating company was the safer option.