Mitsubishi plans accounting change to clean up balance sheet
Company hopes it can restore dividend to shareholders
TOKYO (Bloomberg) -- Mitsubishi Motors Corp.'s board today announced plans for an accounting change that will help unload the worst accumulated losses in the automotive industry.
The move is designed to help Mitsubishi -- which stopped paying dividends in 1998 -- shore up its balance sheet and resume returning cash to shareholders.
In effect, the company would enact an accounting change that eliminates accumulated losses by reducing its capital stock by the same amount, but shareholders must approve the measure at their annual meeting on June 25. (For the company's formal explanation, click here.)
The carmaker, in the statement, said it will decrease its capital by 75 percent to 165.7 billion yen ($1.6 billion) and cancel all of its 433.2 billion yen in capital reserves, it said in a statement today.
The Tokyo-based company also plans to ease restrictions on its ability to issue shares, among proposals subject to approval from shareholders at next month's annual general meeting.
The company has been seeking to restore confidence in its cars for more than a decade after saying it covered up safety defects and customer complaints, alienating consumers to the point that it required a 540 billion yen bailout in 2005.
"Even if they erase the accumulated loss and streamline their financials, if they don't have a clear growth strategy toward the future, it will be difficult to raise money," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co.
Mitsubishi group companies -- Mitsubishi UFJ Financial Group Inc., Mitsubishi Corp. and Mitsubishi Heavy Industries Ltd. -- now own 36 percent of the automaker's outstanding shares, according to data compiled by Bloomberg, after they bailed out the company, partly by purchasing preferred stock convertible into common shares.
Like most Japanese exporters, Mitsubishi Motors is benefiting from a weaker yen that increases the value of overseas sales. The company is forecasting net income will rise 32 percent to a record 50 billion yen in the fiscal year ending March 2014. That's not enough to make up for Mitsubishi Motors' accumulated losses -- ranging from 688 billion yen to 924.6 billion yen, depending on its consolidated or non-consolidated statements.
Those are the biggest retained losses by any carmaker in the world, according data compiled by Bloomberg.
Still, the company is looking to expand.
Last year, it began production at a third factory in Thailand as demand increases in Southeast Asia. It aims to double sales in China this year with its venture with Guangzhou Automobile Group Co. In Japan, where minicars have taken up about 40 percent of the new car sales, Mitsubishi Motors has teamed up with Nissan Motor Co. to develop vehicles with small engines.
"It's a good time for them to erase accumulated loss as the yen is turning weaker and business in Asia is expanding," said Satoshi Nagashima, Senior Partner at Roland Berger Strategy Consultants. "If they can make sure of the profits this current fiscal year, the possibility of paying dividends will be greatly increased."
Mitsubishi Motors sold 20,457 vehicles in the United States through April, a 7 percent decline from the same period last year in an overall market that has risen 7 percent. Last year, the company's U.S. sales slipped 27 percent to 57,790 vehicles while the overall market gained 13 percent.
Earlier today, Mitsubishi Motors' stock price rose 4 yen on the Tokyo Stock Exchange to 162 yen. Over the past 52 weeks, it has traded between 66 yen and 226 yen.
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