Sumitomo Mitsui Financial Group Inc. unveiled a plan Monday to boost its capital base by the end of next month by issuing an additional 300 billion yen in preferred shares.
The plan calls for Sumitomo Mitsui to sell 100,000 preferred shares for 3 million yen each to its overseas affiliate SMFG Finance (Cayman) Ltd., based in the Cayman Islands. The affiliate will the repackage the shares for sale to institutional investors.
The plan is reportedly aimed at financing the disposal of bad loans and possible capital losses on shareholdings. It follows an issuance of shares worth 150 billion yen to Goldman Sachs Group Inc. earlier this month.
Following the issuance, Sumitomo Mitsui’s capital adequacy ratio is expected to stand at between 10 percent and 11 percent at the end of March. This is above the 8 percent requirement set by the Bank for International Settlements for banks that operate internationally.
The issuance will bring the amount of funds raised through new stock issues by the top five banking groups — Mizuho Holdings Inc., Mitsubishi Tokyo Financial Group Inc., UFJ Holdings Inc., Resona Holdings Inc. and Sumitomo Mitsui — to more than 2 trillion yen.
The figure is comparable with the combined 2.15 trillion yen in new shares that Japan’s large banks issued to the government in fiscal 1998 in what was termed a public-funds injection. The banks were facing a major crisis at that time as well, and the injection was billed as the final solution to their bad-loan woes.
In November, Sumitomo Mitsui estimated that it had disposed of some 700 billion yen in bad loans during the fiscal year. This amount is expected to increase, however, following special inspections of its assets by financial authorities, according to some financial analysts.
The new shares will carry the right to be converted into common shares, according to the financial group.
Holders of preferred shares have priority over holders of common shares in terms of dividend payments — although their voting rights are limited.
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