Releasing collateral and borrowing against group cash flow — and staying unlisted (1975)

The complaint that Mori takes only the good parts

What Mori Building released around 1975 was the land and buildings it had pledged to its banks. Instead of mortgaging assets one by one, it persuaded the banks to lend against the group considered as a single project — a negotiation that took some two years before the terms were accepted. Rental income carries very little cost of sales and is close to gross margin; redesigning the debt so that it was repaid out of that income can be seen as one reason the balance sheet held twenty years later, when unrealised land gains fell from a peak of ¥1.5 trillion to the low hundreds of billions.

This was not, however, a flawless structure. In the year to December 1994 interest-bearing debt reached ¥770bn, more than seven times operating revenue, already beyond the five-times limit the company had set itself. And the method of staying private while inviting institutional investors and trading houses into joint ventures drew complaints from partners that Mori was taking only the good parts. To raise money widely from investors is to owe them the disclosure a listed company gives and to hear them as shareholders. What Mori Building avoided may have been less the short-termism of public shareholders than the burden of that disclosure and explanation.