Mazda Motor Corp. (7261), Japan’s most unprofitable major carmaker, will raise as much as 151.2 billion yen ($1.9 billion) in a record share sale to replenish capital as it braces for its biggest annual loss in 11 years.
The maker of the Mazda 3 compact car will sell as many as 1.22 billion new shares, almost 70 percent of its outstanding stock, at 124 yen apiece, the company said in a statement today. That’s 3.1 percent below the stock’s last closing price.
The nation’s most export-reliant carmaker is forecasting a 100 billion yen annual loss after the yen appreciated against all major currencies during 2011, which has also driven down earnings at Toyota Motor Corp. (7203) and Honda Motor Co. (7267) The proceeds may help Mazda avoid a debt-rating downgrade and allow the company to fund overseas factories needed to reduce its vulnerability to the Japanese currency.
Mazda rose 0.8 percent to close at 128 yen before the announcement. The stock has fallen 5.9 percent this year, the worst performer among Japan’s eight biggest automakers.
The share sale will raise less than the preliminary 162.8 billion yen the company estimated Feb. 22.
Mazda, based in Fuchu, western Japan, is planning to use part of the proceeds to build a $500 million factory in Mexico, where it aims to build 140,000 cars a year, by April 2013.
The company also plans to borrow 70 billion yen in loans this month as part of its fundraising plans.
The funds also reduces the risk Mazda’s debt rating will be cut by Japan’s Rating & Investment Information Inc., which on Feb. 2 said it may lower its BBB classification -- two levels above junk. Five quarters of losses eroded the company’s equity -- also known as book value -- to less than 20 percent of assets. Mazda’s debt isn’t rated by Standard & Poor’s and Moody’s Investors Service.
The ratio of stockholder’s equity relative to total assets is among the most important measures determining company’s credit rating, according to R&I’s website. While a capital increase is positive for Mazda’s creditworthiness, it isn’t the only measure to gauge the company’s ability to generate cash, according to Jun Tanaka, chief analyst at R&I in Tokyo.
The share sale comes after Mazda President Takashi Yamanouchi reporters in Tokyo that repairing Mazda’s capital “is a must” and that the company was weighing its options to boost capital.
Mazda on Feb. 2 widened its full-year loss forecast, citing the growing “financial instability” in Europe and shortfalls from last year’s floods in Thailand among reasons for the company to lower its projections.
Mazda has posted losses partly because of its vulnerability to the yen, which has appreciated against all major currencies in the past two years. To reduce the currency risk, Mazda plans to increase its portion of overseas production to 50 percent by March 2016 from about 30 percent now. The company is also counting on its Skyactiv technology -- designed to improve fuel efficiency, driving performance and reducing production costs -- to help revive profits.
SMBC Nikko Securities Inc., Nomura Securities Co. (NCLZ) and JPMorgan Securities Japan Co. are among the brokers hired to arrange the sale.
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