Testing pane

Abenomics opens a capital window for Japan Inc

Abenomics has opened a window for Japan's crippled corporate icons. A weaker yen is driving earnings higher. Sensing a change in investor sentiment, Sharp and Mitsubishi Motors may offer shares to the public to raise capital. The pair could raise a combined $3.5 billion to transform their finances, according to reports. It will be a test for the country's recovering equity capital markets.

The stock market revival since Prime Minister Shinzo Abe was elected at the end of 2012 has boosted Japanese equity issuance. The value of equity issued this year is already 42 per cent higher than in the whole of 2012. If the current pace is sustained, the amount raised this year could come close to pre-Fukushima levels in 2010, when Japanese companies raised $58 billion, according to data from Thomson One.

Until now, however, equity issuance has been mostly dominated by solid growth companies that had long planned to tap the market. For example, the government's sale of its stake in Japan Tobacco raised $7.8 billion in March. Soft drinks supplier Suntory raised $4 billion through an initial public offering in July, and promptly spent part of the proceeds on British soft drink brands Lucozade and Ribena.

The prospect of Sharp and Mitsubishi Motor joining the rush is evidence that more challenged companies are also seizing the opportunity to recapitalise. The electronics maker has been grappling with plunging sales of televisions and other products, while the car maker is facing pressure to repay preferred shares issued to other parts of the Mitsubishi empire.

The 24 per cent decline in the yen against the US dollar since the start of November - when investors first began to price in an easing of monetary policy by the Bank of Japan - is helping exports. Sharp reported a surprise operating profit during the first quarter to June. Meanwhile, Mitsubishi delivered a record net profit for the financial year that ended in March.

The benchmark Nikkei 225 index is up more than 60 per cent over the past ten months. That is a potential lifeline for companies eager to swap debt for equity. Still, they must tread carefully: investors remain cautious and demand a coherent strategy from the management. Abenomics may have opened a window, but the glass in the frame is still fragile.