To develop the cars of tomorrow, Toyota Motor is trying to create a new security aimed at investors willing to stick around for the ride.
Toyota said Tuesday it will sell as much as 500 billion yen ($4.2 billion) of new “Model AA” shares, named after its first passenger car.
The unlisted stock will be sold for at least a 20 percent premium over common equity and restricted from trading for five years. The lure for investors will be a stepped-up dividend and option to sell the shares back at the issue price, or convert them into common stock.
“Toyota wants to have more stable individual investors,” said Kazuyuki Terao, Tokyo-based chief investment officer at Allianz Global Investors Japan.
“The point here is Toyota guarantees the principal. The company should be able to build win-win relationships with investors through this.”
Japan’s largest company is taking a lead in combating what the government has termed short-termism in markets.
While still giving holders a say in how the company is run, Toyota’s AA shares delay both the potential upside of capital gains and the ability to sell.
Ways of favoring long-term investors also are being pursued in Europe, with the French government forcing compliance with its “Florange Law” that promises extra voting power to those owning stocks for more than two years.
A government-backed study last year recommended creating an environment where Japanese can grow their longer-term household assets through investment in “sustainably growing companies.”
It also stressed the importance of attracting long-term oriented investors who “understand the company well and support it.”
Toyota will initially sell as many as 50 million of the shares after the plan is approved at the company’s annual shareholder meeting in June, according to a statement.
The timing of additional sales hasn’t been decided, but they aren’t expected to take place more than once annually, the company said.
The dividend will start at 0.5 percent, increasing by 0.5 percent each year to a maximum of 2.5 percent. That compares favorably with the best interest rate Japan’s banks offer today on fixed deposits, which is about 0.35 percent. The stock, to be sold in Japan, will have voting rights and won’t be listed.
The company named Nomura Holdings as the underwriter for the sale in its filing.
Investors outside Japan may be deterred by the five-year lockup as it poses a currency risk, said Andrew Clarke, director of trading at Hong Kong brokerage Mirabaud Asia.
“Overseas investors would be worried about yen depreciation,” Clare said.
“There’s no point investing in something that will give you a 2.5 percent yield in yen if the currency goes down 10 percent between now and then.”
The automaker’s American depositary receipts rose 1 percent to $142.06 at the close in New York.
Toyota said it wants to raise capital from medium- and long-term investors to help fund expensive development endeavors, such as safety systems, hybrids or fuel-cell vehicles.
The company began sales in December of the Mirai sedan, its first production car to run on hydrogen and emits only water.
President Akio Toyoda billed Mirai as the car for the next 100 years last month in a meeting with about 4,000 individual investors in Nagoya, Japan.
While the automaker is embracing fuel-cell vehicles over plug-in electric cars, early sales will be limited because of the high cost to develop Mirai, which costs 7.24 million yen, as well as to build hydrogen refueling stations.