Japanese retailer Yaohan International Holdings (YIH) is proposing to streamline operations by making Yaohan Hongkong Corp (YHK) a wholly-owned subsidiary. The retailer has been beset by sluggish retail sales and high rents in its department store operations. Last night, majority shareholders of YIH who at present own 41.95 per cent of YHK told YHK directors to put an offer to the company's remaining minority shareholders, who together own 58.05 per cent of YHK. Exactly how much the deal is likely to cost YIH is not known at present, but the market capitalisation of YHK stood at $133.2 million by the close of trading on the Hong Kong stock exchange yesterday. Directors for both companies said the restructuring was necessary because the group's retail business had suffered considerably over the past two years as a result of depressed consumer sentiment in Hong Kong. In 1995, YHK said it posted losses amounting to $46.9 million while results for 1996, announced yesterday, held equally bad news. This past financial year, operations were severely affected by increases in rents at Yaohan's Sha Tin store and depreciation costs involving its new outlet in Ma On Shan, directors said. Despite cost-cutting efforts, YHK reported losses amounting to $165.47 million. In the face of such losses, YHK said that its net tangible assets had been reduced to $137 million with the company now having to rely on short-term loans, due to the fall in assets. 'These facilities are currently substantially utilised and the YHK Group is dependent upon the future commitment of its banks, which directors of YHK believe will be obtained,' the company said. Directors of YHK said privatisation represented the best opportunity for the group to consolidate its network of department store operations in Hong Kong, Macau and China under one entity. While YHK is expected to incur losses for 1997, directors expressed confidence that with the privatisation and gradual recovery in the retail market, ''the loss-making situation of YHK can be arrested, given time'. Under the terms of the proposal the shares of minority shareholders in YHK would be cancelled and every shareholder holding 1,000 YHK shares would receive 451 new YIH shares. Shareholders could also take advantage of another scheme whereby they would receive 38.1 cents for every share in their possession. 'The entitlement to receive YIH shares as consideration for the cancellation of the YHK shares enables the minority shareholders to participate in the future prospects of the YHK Group through the shareholdings in YIH while the cash entitlement allows the minority shareholder to realise their investment immediately,' the directors said. The company said that the maximum number of new shares in YIH which could be issued would be 94.26 million or 9.53 per cent of the existing share capital of YIH. Minority shareholders will have a a chance to vote on the plan at the annual general meeting of YIH on September 17.