Aozora Bank, Majority-Owned By Cerberus, Pushes Back Government's Preferred Shares Conversion Deadline By 10 Years

On Monday 27th, Aozora Bank Ltd., the successor institution to failed Nippon Credit Bank majority-owned by Cerberus Capital Management LP, said it has agreed with the Japanese government to repay public funds in installments over the next decade. It will make an initial upfront payment to the government of JPY 22.7 billion (USD 288 million) and then pay it JPY 20.49 billion annually until 2022.　

When the government injected public funds into the bank in 1999 and 2000, the state received convertible preferred shares worth JPY 320 billion (USD 4.1 billion), of which JPY 180 billion worth remain outstanding.

This deal pushes back the mandatory conversion of the government's preferred shares until 2022. One tranche of the preferred shares was due for conversion in October.

To generate funds for the repayment, Aozora plans to reduce its capital base from JPY 420 billion (USD 5.4 billion) to JPY 100 billion. Aozora will also buy back 330 million shares, or about a fifth of shares issued, and boost its dividend payout from 30% to 40% of earnings, one of the highest ratios among Japanese banks.

The plan is subject to the approval of shareholders at an extraordinary meeting on Sept. 27.

Aozora Bank shares jumped 20% at the news as the retail investors welcomed the proposal for share buybacks and dividend payout ratio increase.

Daikin To Buy Goodman From Hellman & Friedman for USD 3.8 Billion

Daikin Industries Ltd. (6367) will acquire Goodman Global Inc., the leading manufacturer of home air conditioners in the U.S., for roughly JPY 296 billion (USD 3.8 billion) from Hellman & Friedman LLC. The acquisition would be one of the largest yet this year by a Japanese manufacturer.

Daikin's air conditioning segment rang up sales of JPY 1.04 trillion (USD 13.2 billion) in fiscal 2011, making the firm No. 1 in the global market. With Goodman's sales, the sales will increase to JPY 1.2 trillion (USD 15.2 billion). 

Back in the spring of 2010, Daikin launched talks to acquire the U.S. firm in a deal that could have cost as much as JPY 350 billion. The negotiation was halted after the March 2011 earthquake. Daikin apparently restarted the talks aided by a strong JPY currency and urged by increased competition from Chinese manufacturers.

Currently Daikin shares are trading at 5.5 % below the yesterday's closing price.

KKR To Invest USD 1.27 Billion To Take Over Renesas Electronics

The Nikkei reported this morning that Kohlberg Kravis Roberts & Co. has decided to take over management of Renesas Electronics Corp. (6723) by spending JPY 100 billion (USD 1.27 billion) to acquire new shares from the struggling chipmaker.

KKR has presented its proposal to Renesas' three major shareholders, NEC Corp. (6701), Hitachi Ltd. (6501) and Mitsubishi Electric Corp. (6503), as well as the chipmaker's main banks. It hopes to reach a formal agreement as early as next month and to own a majority stake of the company by December.

Renesas has a market capitalization of about JPY 95 billion (USD 1.21 billion) . By seeking more than 5,000 voluntary early retirements and closing down some facilities, it expects to report an extraordinary loss of 150 billion yen for the current fiscal year. Renesas also plans to eliminate up to 14,000 jobs (roughly 30% of its workforce) and shut or sell nine domestic plants within three years.

NEC, Hitachi and Mitsubishi Electric have already agreed to provide a total of JY 50 billion (USD 630 million) through loans and other measures and 4 major banks are prepared to lend up to JPY 50 billion (USD 630 million) in total.

According to the Nikkei report, Renesas had requested that KKR spend JPY 50 billion (USD 630 million) on a private placement of new shares. But KKR apparently determined that it needs to take management control for a quicker restructuring and KKR may replace Renesas' management if the US fund becomes unsatisfied with the restructuring progress.

The news sent Renesas shares more than 30% higher this morning.

Sharp Divestments Will Provide Opportunities For PE Funds

Sharp Corp. (6753) reportedly plans to sell its information equipment business (copiers etc., JPY 277.5 billion / USD 3.5 billion in sales), electronic devices business (LED lighting etc., JPY181.2 billion / USD 2.3 billion in sales) and air conditioning equipment business (JPY 53.5 billion /USD 0.7 billion in sales).

Sharp may also invited a JV partner to operate its main plant in Kameyama, which makes LCD panels for Apple. It may also have other firms operate its TV assembly plant in Mexico and solar cell production facilities. It will sell its 0.6% stake in Olympus (7733) and possibly its 9.8% interest in lithium ion battery joint venture Eliiy Power Co.

Kyocera (6971), Daiwa House (1925) and Daikin Industries (6367) are among the firms to have reportedly expressed interest in buying them. According to our source, a few private equity firms have been in contact with Sharp.

Bracing for a huge net loss this fiscal year, Sharp seeks to get back on its feet by focusing on such fields as LCDs, mobile phones and white goods. With about JPY 200 billion (USD 2.5 billion)  in convertible bonds set to mature in autumn of next year, Sharp is in need of cash.

Japan Airlines to Be Re-listed, Bringing a Profit to ETIC

Japan Airlines Co. will be re-listed on the Tokyo Stock Exchange on 19 September 2012.

JAL filed for a bankruptcy on 19 January 2010 and received capital injection of JPY 350 billion (USD 4.5 billion) from the state-backed Enterprise Turnaround Initiative Corp. of Japan (ETIC). Having wiped out all of the shareholder equity 2.5 years ago, JAL has engaged in substantial corporate restructuring - reducing its flight routes and employees by 40% and cutting pension obligations and the number of subsidiaries by a half. It reported JPY 200 billion (USD 2.5 billion) operating profit in FY 2012.

ETIC, which owns approx. 96% of the carrier, will be selling its entire holdings at the listing. While the actual offering price will be set on 10 September, EITC would nearly double its investments if the price is set at JPY 3790, as reported by a media.

Banks to Be Allowed to Hold More Than 5% of Non-Financial Companies

The Financial Services Agency plans to relax the rule limiting bank stakes in non-financial companies to 5%, The Nikkei reported. By lifting the cap on ownership to 10-20%, the FSA hopes to nudge banks, particularly regional financial institutions, into helping struggling companies get back on their feet. If regional banks become able to provide more capital in addition to loans, it would stabilize smaller businesses' cash flows and could spark fresh capital investment. There have been calls within the ruling Democratic Party of Japan to relax the rule to encourage the growth of local economies.