UPDATE 8-Resona plans $7.4 bln share issue, stock plunges

* Shares plunge 16 pct ahead of announcement on media
reports

* Resona to buy back up to 900 bln yen pref shares from
state

* Resona owes about 1.7 trln yen in public funds

* Offering roughly equal to Resona’s current market cap
(Adds Resona Chairman comments, graphic)

By Taro Fuse and Emi Emoto

SINGAPORE/TOKYO, Nov 5 (BestGrowthStock) – Japan’s No.4 bank Resona
Holdings (8308.T: ) said on Friday it would raise about $7.4
billion to repay government bailout funds, confirming earlier
reports that sent its shares tumbling 16 percent.

The slide marked the stock’s biggest one-day fall in more
than seven years and sliced $1.5 billion off the bank’s market
value as news of the impending share sale — first reported by
Reuters — caught investors off guard.

“We had seen the probability of a capital raising as being
exceptionally low, so the news has taken us by surprise,”
Hironari Nozaki, analyst at Citigroup Global Markets Japan,
wrote in a note to clients ahead of Resona’s official
announcement.

After the close of trade on Friday, Resona registered to
sell 600 billion yen ($7.4 billion) worth of new shares and
said it would put the proceeds towards buying back 900 billion
yen of preferred shares owned by the government.

The move will put a sizeable dent in the 1.7 trillion yen
Resona still owes taxpayers from bailouts in the late 1990s and
the government’s takeover of the bank in 2003, after it nearly
collapsed under a mountain of bad loans.

Resona’s fundraising differs from that of its bigger rivals
in that it is not tapping the market to meet stricter capital
regulations known as Basel III, since they will not apply to
domestically operating banks like Resona.

Japan’s top three banks — Mitsubishi UFJ Financial Group
(8306.T: ), Mizuho Financial Group (8411.T: ) and Sumitomo Mitsui
Financial Group (8316.T: ) — have recently embarked on big
capital raisings in response to the new rules, which they must
meet to maintain their growing global operations.
[ID:nLDE69I16V]

“Stakeholders have expressed their displeasure that they
have not been able to see a scenario of how we would pay back
the public money and we wanted to send a message to resolve
this as soon as possible,” Resona Chairman Eiji Hosoya told a
news conference.

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For a graphic on Japan banks and capital raisings:

http://r.reuters.com/myk93q

For a PDF on Basel III : http://r.reuters.com/zys68p

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FIVE YEAR PLAN

Earlier this year, Resona bought back about 400 billion yen
worth of its preferred shares from the government, marking
steady progress in its efforts to repay its debt to taxpayers,
which at its peak was more than 3 trillion yen. [ID:nTOE67P06N]

Hosoya said he was aiming to finish buying back the state’s
preferred shares in five years and pledged there would not be
another share offering.

“I am absolute on this point, otherwise this offering would
not succeed. We need to show this is the very end. Some might
imagine that like megabanks we would do another offering, but
it would be a betrayal,” he told reporters after a news
conference.

Deutsche Securities analyst Yoshinobu Yamada said a common
share sale would in theory not dilute existing shareholders,
given that Resona would simply be using the funds to buy back
preferred shares that could have been converted into common
stock.

But he questioned the timing of the move given slack
investor interest in underperforming Japanese shares.

“You have to wonder if there wasn’t a better time for this
from the perspective of market sentiment,” Yamada said.

Prior to the announcement, Resona shares slid 16.3 percent,
or by their daily limit of 100 yen, to 512 yen. Volume jumped
to 24 million shares, more than four times the average over the
past 90 days. The stock has slumped 45 percent so far this
year.

Resona has hired Merrill Lynch Japan Securities and Nomura
Securities to underwrite the share offering, which is roughly
equal to the bank’s current market capitalisation.
($1=80.75 Yen)
(Additional reporting by Taiga Uranaka and Noriyuki Hirata;
Writing by Nathan Layne; Editing by Chris Gallagher and Lincoln
Feast)

UPDATE 8-Resona plans $7.4 bln share issue, stock plunges