SMFG plans share issue to foreign investors

TOKYO: Sumitomo Mitsui Financial Group Inc (SMFG), Japan's second-largest banking group, said yesterday it plans to issue an additional 300 billion yen in preferred shares to foreign investors. 

The planned capital increase comes on the heels of a 150 billion yen share issued to Goldman Sachs Group Inc earlier this month, though in contrast with that deal the latest move targets a wide range of overseas institutional investors. 

The stock market appeared unimpressed by the move. Analysts are concerned that the dividend burden on preferred shares could weigh on SMFG's financial standing. 

Masamoto Yashiro

SMFG said it plans to set up an overseas special-purpose vehicle (SPV) to issue the shares, but did not specify which foreign investors would buy them.  

Lead managers for the new share issuance are Daiwa Securities, Goldman Sachs and JP Morgan. 

SMFG spokesman Takashi Morita said the funds raised could raise the group's capital adequacy ratio by up to one percentage point to around 11% by the end of March.  

The ratio is a key gauge of financial health that measures the level of capital compared with risky assets. 

SMFG said it plans to issue 100,000 shares at about three million yen per share on March 12.  

Dividends will be decided between Feb 19 and 21. 

Analysts said SMFG could be looking to offer annual dividends of around 2% to 3% at a premium over the two-year LIBOR (London interbank offered rate), which was around 0.12% yesterday. 

For the Goldman Sachs deal, SMFG will be paying 4.5% in annual cash dividends, which some analysts see as generous.  

Payment is due on March 11. The preferred stock can be converted to common shares from April 14 this year to July 12, 2005. 

Analysts have generally welcomed the recent rush by Japan's four megabanks to strengthen their capital, which has been hit by ballooning losses on shareholdings due to a plunging stock market as well as the rising cost of cleaning up bad loans. 

SMFG's latest move follows a deal sealed on Friday by UFJ Holdings Inc, Japan's fourth-largest banking group, in which US investment bank Merrill Lynch & Co Inc plans to inject 120 billion yen into a UFJ unit by buying preferred stock. 

With the other two megabanks – Mitsubishi Tokyo Financial Group and Mizuho Holdings Inc – also seeking to strengthen their capital, the total amount of capital the four megabanks plan to raise to fortify their balance sheets is expected to be over 1.9 trillion yen.  

In another development, Shinsei Bank chairman Masamoto Yashiro said in an interview that Shinsei Bank, which made a name for its tough lending stance on shaky borrowers, plans to boost loan assets in the fiscal year starting in April as it seeks to efficiently use its resources. – Reuters 

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