Mazda shares fell 10 percent after announcing a $2.1 billion stock, loan plan

Article by Christian A., on February 23, 2012

Mazda Motor Corp.’s shares fell 10 percent amid reports about its plans to raise $2.1 billion to support its finances and to invest in a new plant in Mexico, according to financial sources. This was regarded to be a fund-raising export that was just bigger than anticipated. Sources said that Mazda, which has been incurring losses, intends to raise 100 billion yen ($1.3 billion) through a public share offering and 70 billion yen through subordinated loans from banks.

Using today’s closing share price of 145 yen, Mazda would have to add just under 690 million shares (standing for a 38.7 percent dilution of existing shares) if it were to raise 100 billion yen through a new issue.

Kenichi Hirano, operating officer at Tachibana Securities, said that “such a large surprising fund-raising” would understandably lead to a “share reaction of this size.” Due largely to the impact of the strong yen, Mazda is expected to post its fourth consecutive annual net loss in the financial year to March. A loss of 100 billion yen is predicted to be posted this month – a lot worse than the previous estimate of a 19 billion yen loss.

Mazda, which produces the Mazda2 subcompact and the Mazda3 compact car, is the most affected by currency fluctuations among Japanese automakers.

This is because Mazda produces around 70 percent of its vehicles in Japan and exported 90 percent of those in 2011. Koji Endo, an analyst at Advanced Research Japan, said that Mazda’s “fundamental outlook” continues to be “very grim.” He adds that there’s presently a “huge need for cash.” He explained that even if Mazda is able to raise 170 billion yen, this would “evaporate pretty quickly” after it pays all the bills. [source: Autonews]

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