Mitsubishi Motors Corp. (7211) plans to reorganize its capital to help unload the worst accumulated losses in the automotive industry.
The carmaker will decrease its capital by 75 percent to 165.7 billion yen ($1.6 billion) and cancel all of its 433.2 billion yen in capital reserves, it said in a statement today. The Tokyo-based company also plans to ease restrictions on its ability to issue shares, among proposals subject to approval from shareholders at next month’s annual general meeting.
The move is designed to help Mitsubishi Motors, which stopped paying dividends in 1998, shore up its balance sheet and resume returning cash to shareholders. The company has been seeking to restore confidence in its cars for more than a decade after saying it covered up safety defects and customer complaints, alienating consumers to the point that it required a 540 billion yen bailout in 2005.
“Even if they erase the accumulated loss and streamline their financials, if they don’t have a clear growth strategy toward the future, it will be difficult to raise money,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co.
Mitsubishi Motors rose 2.5 percent to close at 162 yen in Tokyo before the announcement. Yesterday, the stock had its biggest decline since July 2004 amid a rout in Japanese shares.
The company also announced a 1-for-10 reverse stock split.
“If they can really start paying dividends again, that could lead to gains in their share prices,” Satoru Takada, a Tokyo-based analyst at Toward the Infinite World Inc. “Today’s announcement is still the first steps and what the markets need is information on a strategy from the company or signs that sales are going to grow, that they will be profitable.”
Mitsubishi group companies -- Mitsubishi UFJ Financial Group Inc., Mitsubishi Corp (8058) and Mitsubishi Heavy Industries Ltd (7011) -- now own 36 percent of the automaker’s outstanding shares, according to data compiled by Bloomberg, after bailing it out, partly by buying preferred stock convertible into common shares.
Like most Japanese exporters, Mitsubishi Motors is benefiting from a weaker yen that increases the value of overseas sales. The company is forecasting net income will rise 32 percent to a record 50 billion yen in the fiscal year ending March 2014.
That’s not enough to make up for Mitsubishi Motors’ accumulated losses -- ranging from 688 billion yen to 924.6 billion yen, depending on its consolidated or non-consolidated statements. Those are the biggest retained losses by any carmaker in the world, according data compiled by Bloomberg.
Still, the company is looking to expand. Last year, it began production at a third factory in Thailand as demand increases in Southeast Asia. It aims to double sales in China this year with its venture with Guangzhou Automobile Group Co. (2238)
In Japan, where minicars have taken up about 40 percent of the new car sales, Mitsubishi Motors has teamed up with Nissan Motor Co. (7201) to develop vehicles with small engines.
“It’s a good time for them to erase accumulated loss as the yen is turning weaker and business in Asia is expanding,” Satoshi Nagashima, senior partner at Roland Berger Strategy Consultants. “If they can make sure of the profits this current fiscal year, the possibility of paying dividends will be greatly increased.”
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