Japan’s Asahi Kasei
 Admits To Faulty Construction

Asahi Kasei, one of Japan’s largest chemical companies, admits that a subsidiary that builds residential homes performed substandard work and falsified data on apartment towers it built in Yokohama, Japan.

In a statement, Asahi says it doesn’t know if the problems afflict other construction projects undertaken by the subsidiary, Asahi Kasei Construction Materials, but it has promised to investigate. Asahi Kasei Construction Materials will inspect about 3,000 residential and commercial projects it participated in recently.

Moody’s, the credit rating agency, revised Asahi Kasei’s credit outlook to “negative” in view of the large financial liability that the company now could face. “We expect Asahi Kasei Construction Materials will bear a substantial amount of costs incurred for investigation as well as necessary reinforcement and repairs of the defective building(s).” But Moody’s expects that Asahi Kasei will weather the storm financially.

According to Japanese media reports, residents of an apartment building in Yokohama noticed that their tower was leaning. Following this revelation, Asahi was forced to confirm that its construction materials subsidiary had not piled the building’s foundation deep enough and filed false paperwork during construction. Two other companies, Mitsui Fudosan Residential and Sumitomo Mitsui Construction, also participated in the project, which was completed in 2007.

Chemical companies in Japan tend to be more diversified than their Western counterparts. Asahi Kasei entered the homes construction business in the 1970s as an extension of its construction materials portfolio. Whereas homes in Japan at the time needed to be rebuilt every 25 to 30 years, Asahi positioned itself as a supplier of long-lasting homes that could stand for at least 50 years.

In recent years, homes have been a star performer for Asahi, which also produces basic chemicals and electronic materials and earlier this year paid $2.2 billion to buy the battery materials operations of the U.S. firm Polypore International. In the fiscal year that ended March 31, Asahi’s homes segment generated nearly half of its earnings while accounting for less than one-third of sales.