Mazda mulls capital increase after mounting losses

Mazda Motor Corp, the most unprofitable company among Japan’s eight biggest carmakers, said it’s considering ways to boost capital as four years of losses erode equity, threatening its credit rating.

Repairing Mazda’s capital “is a must,” President Takashi Yamanouchi told reporters in Tokyo yesterday after the company reported earnings. “We are considering every option. Nothing has been decided.”

The carmaker’s ¥73 billion ($957 million) third-quarter loss reduced the company’s equity to 19.2 per cent of assets, down 5 percentage points from the end of the previous fiscal year. The drop in the so-called equity ratio triggered Japan’s Rating & Investment Information Inc. to warn it may lower its debt rating on Mazda within three months, raising the risk borrowing costs will rise.

“As long as there are concerns about a possible capital increase, it would be difficult for their shares to recover,” said Yumi Nishimura, an analyst at Daiwa Securities Group Inc.

Mazda, whose shares tumbled 42 per cent last year, fell as much as 5.4 per cent in Tokyo trading today. The shares then reversed declines and traded at ¥133, up 2.3 per cent, at 10:05am on the Tokyo Stock Exchange.

A share sale would give Mazda room to keep its investment- level debt rating as mounting competition and the yen’s appreciation prevents the company from making a profit. Mazda downgraded its earnings outlook yesterday by projecting its biggest full-year loss in 11 years.

“R&I cannot overlook the further weakening of the financial base, which has already been weaker than the rating suggests,” the debt-rating assessment company said in a statement. R&I has a BBB rating, two levels above junk, on Mazda’s debt.

Mazda cited the growing “financial instability” in Europe and shortfalls from last year’s floods in Thailand among reasons for the company to lower its financial projections.

Mazda’s Yamanouchi said he’s confident the company will return to profitability next fiscal year and that the carmaker is “aggressively” looking to form an alliance. CLSA Asia- Pacific Markets said in a report last week that Mazda will probably post losses through the year ending March 2014.

Mazda, which raised ¥93.3bn in a share sale in 2009, forecast yesterday it will post a ¥100bn loss in the year ending March, five times the deficit it projected earlier and more than twice the ¥46bn loss projected by the average of 19 analyst estimates compiled by Bloomberg.