Resona to Pay Back $11 Billion of Japan Bailout With Share Sale, Reserves

Resona Holdings Inc., Japan’s fourth- biggest bank, plans to repay as much as 900 billion yen ($11 billion) of government bailout funds using proceeds from a share sale and internal reserves.

The Tokyo-based bank today registered to sell as much as 600 billion yen of common stock over the next year, according to an exchange filing. It plans to use money from the sale, plus 300 billion yen of reserves, to buy back preferred stock from the government and retire the shares to avoid potential dilution.

Resona tumbled 16 percent today on reports that it would increase the volume of shares by selling new stock. The bank, the second-worst performer on the Topix Banks Index this year, is under pressure to repay a 2003 bailout to regain independence and compete with its bigger rivals, which raised a combined 4.5 trillion yen in stock sales in the past two years.

“It’s not like Resona’s got infinite time, so capital- raising may be pretty much their only option left” to repay public funds and keep growing, said Takehito Yamanaka, a Tokyo- based senior analyst at MF Global FXA Securities Ltd. “The dilution effect may be limited if Resona decides to buy back the shares and retire them.”

The bank plans to hire Nomura Holdings Inc. and Bank of America Corp.’s Merrill Lynch & Co. unit to underwrite the shares, the statement said. Resona owes 1.7 trillion yen to the government, including 1.4 trillion yen of preferred shares that Chairman Eiji Hosoya aims to buy back over the next six years.

Dispel Uncertainty

“Investors’ desire to dispel uncertainty over Resona’s management prospects was the main driving force that led us to set out this repayment plan,” Hosoya said at a news conference in Tokyo.

Under former Prime Minister Junichiro Koizumi, Japan injected 1.96 trillion yen into Resona in 2003 after its capital fell below minimum regulatory requirements. As well as preferred shares, the state owns 42 percent of the firm’s common stock, according to data compiled by Bloomberg News.

“Resona is unloading their burden of public money, and getting management freedom back from the government,” Yoshinobu Yamada, a Tokyo-based analyst at Deutsche Bank AG, said before the announcement. “A question seems to remain: why now, given recent sluggish stock-market sentiment?”

Resona shares have lost 45 percent of their value this year. The stock dropped the most since May 2003 today to its lowest level in seven years. The Topix Banks Index climbed 1.3 percent.

The lender returned to profit in the year ended March 2005 and stayed profitable throughout the global financial crisis. It said on Oct. 29 that net income fell 5.4 percent for the six months ended Sept. 30 from a year earlier as tax expenses outweighed gains from bond sales and a decline in bad-loan costs.

The bank may struggle to lure investors to its sale, said Naoki Fujiwara, a fund manager in Tokyo who helps oversee $6 billion at Shinkin Asset Management Co.

“Even if they do want to repay the public funds, they don’t have to rush to do it,” said Naoki Fujiwara, a fund manager in Tokyo who helps oversee $6 billion at Shinkin Asset Management Co. “There are questions as to why they would sell shares when the price is so low right now.”

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Shingo Kawamoto at skawamoto2@bloomberg.net.

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net.

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