Lenders Unlikely to Tighten Screws on Olympus, for now

Olympus Corp's creditors are not expected to demand changes in loan terms or take other abrupt steps and risk hurting their own interests when they meet company executives on Wednesday to grill them about the firm's huge accounting scandal, sources and analysts said.

Japan's securities watchdog, police and prosecutors are probing the 92-year-old camera and endoscope maker in a joint effort after Olympus admitted last week that it had hid investment losses for decades using funds from M&A deals.

Lenders are expecting mostly an apology at Wednesday's meeting but details will probably be in scarce supply, since a report by an independent committee on the affair isn't due until early December.

The meeting is likely to be just an explanation of what's going on at Olympus, said a source familiar with the matter, who declined to be identified because he was not authorized to speak about it publicly.

I don't think there will be specific talk such as loan terms, with dozens of banks present and so little information, the source said.

'TECHNOLOGICAL PROWESS'

Olympus' main lender, Sumitomo Mitsui Banking Corp (SMBC), and other major creditors said on Monday they were shocked by the scandal at the firm, but that they would not take major action any time soon.

SMBC, the main banking unit of SMFG, had about 90 billion yen in outstanding loans to Olympus on a parent-only basis as of the end of March, Olympus' regulatory filing shows. Its exposure to Olympus is likely to be much bigger since the figure does not include loans to Olympus' group companies.

The bank appears keen to keep Olympus afloat.

The company has over 70 percent share in endoscope market at home and overseas. It has very strong technological prowess, SMFG President Koichi Miyata told the bank's results briefing on Monday.

We will provide the necessary support by weighing the firm's social importance and the committee's findings, he said.

Mitsubishi UFJ Financial Group (MUFG) has about a little over 100 billion yen in loans to Olympus and another major lender Mizuho Bank has 62 billion yen.

We should wait for the report by the independent committee before making decisions, said Katsunori Nagayasu, MUFG president, at its earnings briefing on Monday.

We have not been able to conduct detailed hearing yet. We have too little information to determine our stance.

The three major banks and dozens of local banks that extend credit through syndicated loans have been invited to the meeting with Olympus executives, including President Shuichi Takayama, banking sources familiar with the matter said.

Given so much is at stake, main creditors are unlikely to take harsh steps such as pulling out loans and refusing to refresh credit, which could push the troubled firm over the brink, banking sources and analysts said.

I would be very surprised if the banks were to take precipitous action that forced the company's hand. It's simply not in their interest to do so, said Brian Waterhouse, senior analyst at CLSA Japanese Equities Division.

There are usually in loan agreements things like 'material adverse change' clauses and the banks don't have to immediately react to a technical default, and in fact if it is likely that the company can stay listed on the stock exchange and has a future, then it really behooves the banks to all club together and come up with a plan to provide on-going finance for the company, Waterhouse added.

DIFFERENCES AMONG BANKS

The Tokyo Stock Exchange has put Olympus on its watch list, a possible prelude to delisting. A source familiar with the matter said the Securities Exchange and Surveillance Commission (SESC) might urge that Olympus be fined for false financial reports, a move that might allow the company to remain listed, although experts say that outcome is far from certain.

For SMFG, the Olympus headache comes as it fights to protect its nearly 1 trillion yen loans to Tokyo Electric, operator of the tsunami-crippled Fukushima nuclear plant.

The government is demanding Tepco creditors provide some form of cooperation in exchange for the public money to be injected into the utility to facilitate compensation to victims of the world's worst nuclear accident in 25 years.

Still, there have already been some difference even among the major banks.

While saying Olympus has the potential to survive the scandal, Mizuho President Yasuhiro Sato said his bank lowered internal credit status of Olympus after the scandal broke, a move entailing setting aside more loss provisions for its loans.

We will take appropriate actions if loans (to Olympus) are found to have been used for other than agreed-upon purposes, he told an earnings briefing.

(Editing by Muralikumar Anantharaman)