Mitsubishi Motors Said to Consider $2 Billion Share Sale

Mitsubishi Motors Corp. is nearing a decision to raise as much as 200 billion yen ($2 billion) via a public offering of new shares as it seeks to reduce preferred stock held by other Mitsubishi companies, two people with direct knowledge of the plan said. The shares fell.

The Japanese carmaker will probably announce the plan after reporting half-year financial results at the end of October, with the sale likely occurring between January and March of 2014, the people said, asking not to be identified because the discussions are private. Mitsubishi Motors has made no decision regarding how to increase capital and deal with the preferred shares, the Tokyo-based company said in a statement to the Tokyo Stock Exchange today.

The public offering would be part of a reorganization involving Mitsubishi UFJ Financial Group Inc., Mitsubishi Heavy Industries Ltd. and Mitsubishi Corp., the people said. Those companies, which bailed out their car affiliate in 2004 and 2005, have been stuck with billions of dollars of preferred shares -- convertible into common stock -- that never generated any dividends.

“This move is necessary before they can become a normal company again or exit from emergency mode,” said Koichi Sugimoto, an auto analyst at BNP Paribas SA in Tokyo. “But they’re still in the very early stages of recovery.”

The shares fell 8.1 percent, the most since July 29, to 1,028 yen at the close in Tokyo trading. The stock declined the most among the companies on the benchmark Nikkei 225 Stock Average, which lost 0.3 percent. The Nikkei newspaper reported on the planned sale earlier today.

Kinyokai Family

Though independent, the companies are among the hundreds of Mitsubishi-named businesses that trace their roots to a shipping firm founded by Yataro Iwasaki in 1870, making them the oldest business collective in Japan. Of those, 28 members form an informal group known as the Kinyokai.

The Mitsubishi companies that bailed out their car affiliate have been seeking to convert their preferred stock because the absence of dividend payments rendered them pointless as preferred shares don’t carry voting rights.

Mitsubishi Motors has said it plans to eliminate all outstanding preferred shares before the fiscal year ends in March 2014, when it plans to resume dividends for the first time since the carmaker discontinued such payments in 1998.

As a precursor to the resumption of the payments, the company decreased its capital by 75 percent and canceled all of its 433.2 billion yen in capital reserves in August to erase more than 900 billion yen in accumulated losses. Japanese companies in Japan can’t pay dividends if they have no retained earnings on their balance sheet.

Defect Cover-Up

While the sale would undermine its share price, the carmaker owes its existence to other Mitsubishi companies, receiving cash, debt waivers and loans exceeding more than 1 trillion yen in the middle of last decade. The carmaker needed a bailout after an admission that it covered up production defects for more than two decades led to a sales slump from which the carmaker hasn’t fully recovered.

Things have looked up more recently, as Prime Minister Shinzo Abe’s success in weakening the yen since late last year helped lift the profitability of Japanese exporters. Mitsubishi Motors is now forecasting net income will rise 32 percent to a record 50 billion yen this fiscal year -- a target that analysts expect the company to beat.

Last year, the carmaker began production at a third factory in Thailand to meet higher demand in Southeast Asia. It’s aiming to double sales in China this year and in Japan, the company has teamed up with Nissan Motor Co. to develop vehicles with small engines.

A 200 billion yen share sale would be the third-largest in Japan this year, according to data compiled by Bloomberg.

(Updates with closing share price in fifth paragraph.)
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