Mazda eyes $2bn share offering as strong yen bites

Mazda Motor Corp said on Wednesday it was looking to raise up to ¥162.8 billion ($2bn) in its second public share offering in 2-1/2 years, underscoring the Japanese automaker's vulnerability to the stubbornly strong yen.

The public share offering at Japan's No 5 automaker was bigger than the ¥100bn flagged by financial sources a day earlier and would cause a massive 69 per cent dilution in holdings for existing shareholders.

While the strong yen has hammered all Japanese automakers, Mazda has been hit hardest with about 70 per cent of its production in Japan - 90 per cent of that for export. This month, Mazda said its net loss would balloon to 100 billion yen in the year ending in March, for a fourth straight annual loss and far worse than the previous forecast for a 19 billion yen loss.

"With the plants they have now, they're just not viable," said Christopher Richter, auto analyst at CLSA Asia-Pacific Markets. "They need to get out from under this yen burden."

Excluding the overallotment portion of the offer, Mazda would raise ¥147bn and dilution would be 62 per cent. Mazda is seeking another ¥70bn in subordinated loans.

Mazda said in a regulatory filing it needs about ¥35bn for factories in Mexico and Russia as it aims to raise the ratio of vehicles built outside Japan to 50 per cent by 2016.

Another ¥30bn would be used to pay for improved manufacturing facilities in Japan, and about 93 billion yen to develop next-generation environmental and safety technologies over the next three years, the company said.

But with the Mexican factory not due to start production until the latter half of 2013, analysts said Mazda would remain at the mercy of exchange rates for now.

Mazda is among the few automakers in the world with no capital alliances at a time when many in the industry are tying up to share the rising burden of research and development as governments tighten environmental and safety regulations.

Sources said on Wednesday General Motors Co and France's PSA Peugeot Citroen were discussing a broad manufacturing alliance, even as Mazda's own links with former controlling shareholder Ford Motor Co weaken.

Mazda and Ford still operate joint car factories in China and Thailand, but Ford's stake has fallen to just 3.5 per cent from a peak of 33.4 per cent. The latest share offering would further lower Ford's stake to as little as 2.1 per cent.

"I think Mazda is at a crossroads of determining how it's going to survive on its own," said a Tokyo-based analyst at a European brokerage, declining to be identified.

Mazda CEO Takashi Yamanouchi last week knocked down the possibility of a capital alliance, telling reporters the automaker would opt for project-based partnerships instead.

A reliance on exports has hit Mazda especially hard in Europe, where it was one of the most successful Asian brands just a few years ago. In 2011, Mazda's European sales excluding Russia totalled 145,600 vehicles, falling 55 per cent in three years.

"One of the exposures that none of their announced expansions addresses is Western Europe," said CLSA's Richter. "Europe used to be their strongest market - half of their profits. And they've basically let two-thirds of their share go because they can't afford to sell into that market with the way the euro-yen rate has been."

Mazda, valued at $3.3bn, has around ¥100bn in debt due at the end of March, while its equity ratio - the proportion of equity used to finance its assets - fell below 20 per cent at the end of December, compared with above 30 per cent at Toyota Motor Corp and Honda Motor Co.

Mazda shares ended up 1.4 per cent at ¥147 before the announcement, after tumbling 10 per cent on Tuesday on reports of the capital-raising plans.

The underwriters of the share offering will be SMBC Nikko Securities, Nomura Securities, JP Morgan, Goldman Sachs and Merrill Lynch Japan Securities.