Banks are not the only entities that lend money. Japanese parent entities often finance subsidiaries, leveraging the lower cost of borrowing in Japan.

The outbreak of COVID-19 imposed significant cash flow challenges on many businesses globally. Travel restrictions and ongoing uncertainties continue to prevent Parent entities from assessing the operational ‘health’ of overseas subsidiaries on the ground. The Grant Thornton team can provided this local support to Japanese parent entities.

Client challenge

A reputable Japanese company (Parent company) acquired an Australian entity operation prior to the outbreak of COVID-19. The Australian entity was one of a number of operations within the packaged M&A deal.

Three months post the acquisition, the global pandemic began to impact economies around the world, including Australia. While the Parent company had made post-merger-integration efforts, the Australian subsidiary continued to face cash and liquidity problems and requested the Parent company to finance its working capital needs.

With stringent travel restrictions, the Parent company could not send Japanese management to Australia or take a hands-on approach to tackle the tough market environment, operational challenges and people and leadership dynamics.

The Parent company was faced with the challenge of determining the creditworthiness of the Australian subsidiary for further lending as quickly as possible – while also ensuring the business continued to operate effectively in the short to medium term.

The solution

The team at Grant Thornton was engaged to quickly deliver a financial report to the Parent company within the tight schedule, which was driven by a Board meeting in Japan.

Taking into account the cultural and sensitive nature of the dialogue, Grant Thornton spent a lot time ensuring they understood the Parent company’s needs. Together with the Parent company, Grant Thornton focused on the key financial and operational objectives of the business.

Lender support services allow for a pro-active assessment of a company’s financial, management and security profile. The report developed covered a company and industry overview, benchmarking, adequacy of cash flow and forecasts, review of business plans and alternative methods of financing.

"Whether your international business is big or small, a support network in the jurisdictions in which you operate is crucial.

This is especially so in jurisdictions where you have no experience when responding to change – and when other dynamics mean you can’t be present in the countries needing attention, as seen with COVID-19."

Shoko Arakawa - Japan Practice Leader, Grant Thornton

The outcome

One option for the Parent company was to sell the Australian business. However, it became clear from the review that it wasn't ready for sale.

The team continued to support our client to keep this business’s doors open, while also looking for a local strategic partner.

Shoko Arakawa

With over 15 years’ experience in Japan, Australia and the USA, Shoko offers unique experience and insight into how to bring multi-cultural and multi-disciplinary teams together in support of M&A, international expansion and partnership and business advisory.

Shoko Arakawa

Shoko Arakawa

  • Director - Japan Practice