December 11, 2017 / 9:28 AM / 2 years ago

Japan's Obayashi says offices raided by prosecutors, shares tumble

TOKYO (Reuters) - Obayashi Corp, one of Japan’s ‘big four’ construction firms, on Monday said Tokyo prosecutors have raided its offices on suspicion of “deceptive obstruction of business”, sending its shares tumbling as much as 8 percent.

The logo of Obayashi Corp is seen at a construction site in Tokyo, Japan December 11, 2017. REUTERS/Toru Hanai

The statement followed local media reports over the weekend that Obayashi was under investigation due to suspected inappropriate behaviour during bidding for contracts related to a magnetic levitation (maglev) train line project.

Obayashi declined to comment on the allegation or elaborate on the investigation when contacted by Reuters.

The raid comes as Japan’s corporate culture is under increased scrutiny after a string of compliance failings at manufacturers including automakers and steel makers.

Prosecutors are investigating the bidding process for a contract to build a tunnel emergency exit which was won by a joint venture of Obayashi, Toda Corp and a unit of Central Japan Railway Co (JR Central), the Nikkei business daily reported.

Bidding for a separate contract won by Obayashi, Maeda Corp and the JR Central unit is also under investigation, the newspaper reported.

An executive vice-president at Obayashi was among those questioned by prosecutors, the Nikkei reported. An Obayashi spokesman declined to comment to Reuters on the matter.

Representatives of JR Central, Toda and Maeda told Reuters they had not been contacted by prosecutors.

Employees at another of the ‘big four’ constructors that is involved in the maglev project, Kajima Corp, underwent voluntary questioning by prosecutors, a company spokesman said.

A representative for the Tokyo District Public Prosecutor’s Office could not be immediately reached for comment.

Japan is working on a 9 trillion yen (59.2 billion pounds) maglev line linking Tokyo, Nagoya and Osaka. Trains running at speeds of up to 500 km (311 miles) per hour, through tunnels deep under mountainous terrain, will cut the train travel time between Tokyo and Nagoya to 40 minutes from 100 minutes or more when operation begins in 2027.

Backed by cheap government loans and running in addition to Japan's extensive bullet train network, the project has drawn criticism for its cost and lack of export potential. (

Japan’s large and politically influential construction industry, which worked closely with the government during the country’s post-war economic boom, has been a frequent source of scandals such as bid-rigging.

Legislation has been tightened in recent years to prevent bid-rigging, for instance, and during efforts to clean up the industry, Obayashi in 2006 required managers to sign a pledge to abide by antitrust laws. The next year, however, the firm’s top management resigned following a public works scandal.

“It’s not a surprise to see this kind of news,” said Yasuo Sakuma, chief investment officer at Libra Investments. “This huge national project, involving deep-level works, is only feasible for the largest general contractors and you can imagine competitive bidding being in name only.”

Obayashi’s shares closed down 7 percent on Monday, giving it a market value of some 996 billion yen ($8.77 billion).

Shares of Kajima and Toda closed down around 4 percent, Maeda was down around 2 percent while JR Central was down around 1 percent. The benchmark Nikkei 225 share price index closed up 0.6 percent.

Reporting by Sam Nussey, additional reporting by Tomo Uetake; Editing by Edwina Gibbs and Christopher Cushing

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