Japanese Retailer Files for Bankruptcy

TOKYO —  A failing Japanese retailer filed for bankruptcy protection Wednesday, rejecting a government-backed bailout offer after a public outcry.

Sogo Co. asked the Tokyo district court for protection from creditors after racking up debts totaling about $17.4 billion, the company said.

The announcement comes just two weeks after the Deposit Insurance Corp., a government-affiliated financial institution and one of the country’s largest banks, said it would forgive $4.5 billion in loans to the Osaka-based department store operator. It would have been Japan’s largest corporate bailout.

Japanese stocks fell Thursday on the news, led by lenders such as Industrial Bank of Japan Ltd., on concern they’ll be saddled with more debt.

“The market was hit by ‘Sogo shock,’ ” said Masahide Mitani, a manager at Marusan Securities Co.’s equity department.

Hazama Corp., Kumagai Gumi Corp. and other companies seeking debt waivers fell on concern Japan’s government will make it more difficult for bailouts.

“Sogo’s bankruptcy won’t be the last the market will be forced to deal with,” said Paul Migliorato, a senior salesman at Commerz Securities (Japan) Co.

“The immediate victims are companies dangling near bankruptcy,” Migliorato said.

The Nikkei 225 stock average slipped 181.03, or 1.0%, to 17,161.10.

The Topix index of all shares on the Tokyo Stock Exchange’s first section declined 14.43, or 0.9%, to 1,589.97.

Sogo retracted its request for debt forgiveness after public criticism of the deal led ruling Liberal Democratic Party policy chief Shizuka Kamei to ask company officials to drop the plan, Sogo President Kyoichi Yamada said.

The government joined with the Industrial Bank of Japan to make the bailout offer last month, saying it would prevent the “social disorder” that a bankruptcy would have caused--such as triggering a chain reaction of failures among Sogo’s suppliers.

But critics argued that Japan, one of the world’s most indebted nations, was not in a position to forgive money owed to it, especially when its economy is struggling to recover from a decade-long slump.

Sogo officials said they hope to come up with a new rehabilitation plan, possibly within six months, with help from the Industrial Bank of Japan, Sogo’s main bank.

The Sogo group operates 25 department stores in Japan and several overseas, employing almost 10,000 people.

Analysts say the retailer was too slow in scaling back expansion at the end of the 1980s, saddling it with heavy loans it could not pay back.

The Sogo bailout would have exceeded the last big bailout--about $3.3 billion in loan write-offs that creditors approved last year for Hasegawa Corp., a struggling builder.