TOKYO -- Mazda Motor is looking to refinance 70 billion yen ($680 million) in subordinated loans as early as July, taking advantage of low Japanese interest rates to secure a long-term, stable source of funding.
The Japanese automaker is ironing out details with Sumitomo Mitsui Banking Corp., Hiroshima Bank, the Development Bank of Japan and three other institutions. It is expected to ink agreements soon for 60-year loans with an annual rate in the upper 1% range.
Mazda's existing loans carry a rate 4.75 percentage points above the six-month Tokyo interbank offered rate, with another 1-point increase scheduled next July. Refinancing the debt will slash the company's interest payments by several billion yen a year.
The automaker raised about 230 billion yen through a public offering of new shares and subordinated loans in 2012, right as the strong yen was squeezing its earnings, to develop the proprietary Skyactiv green technology and fund capital investment. It aims to readjust the lending terms to match the current low-rate environment.
Mazda logged a record operating profit for the year ended March 31 and is expected to turn effectively debt-free by the end of the current fiscal half. It is seen maintaining an annual free cash flow of about 100 billion yen to 150 billion yen. The carmaker's last immediate financial concern is refinancing debt under better terms.
Subordinated loans are partly considered equity and help improve a company's financial position, but they generally carry higher interest rates than other types of lending. Still, companies have been able to raise funds under favorable terms thanks to plunging interest rates in Japan.