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.