NAGOYA -- Toyota Motor has caught investors' attention with a new class of stock it is issuing this month to lure more individuals into the fold.
The new shares will be priced at 10,598 yen ($85.21), the upper limit of a tentatively set range and 30% higher than Thursday's closing price of Toyota common stock.
Interested parties have already asked for four to five times the value of the planned issuance, according to a source familiar with the matter.
The automaker will solicit investors in the so-called Model AA Class Shares, named after its first passenger car, from July 3 through July 22. It plans to sell 47.1 million of the shares on July 24, raising 499.1 billion yen.
Toyota President Akio Toyoda has said the new stock class "would offer more options" to shareholders and help revitalize capital markets in Japan.
Setting a cap at 150 million shares, Toyota plans multiple offerings. The stock will "draw money sleeping in banks to the capital market," a senior official at chief underwriter Nomura Securities said.
The issuance is aimed at securing more long-term shareholders -- especially retail investors, who now account for a little over 10% of Toyota's total.
Guaranteed dividends are a major draw. They will start at 0.5%, generating 52 yen a share for the first fiscal year, and gradually rise to a maximum of 2.5% in five years.
Another key feature is the ability to sell the stock back to Toyota at the original price after five years -- an effective guarantee on principal.
Toyota's strong financial foundation allows the company to make such an offer, the Nomura official said. In other words, the product is a stock in name only but effectively a bond.
The new shares will yield 1.5% on average during the first five years, less than a Nikkei estimate of 2.45% for the company's common stock in fiscal 2015. But the product is "far more attractive than government bonds or corporate bonds, such as the one recently issued by SoftBank with a coupon rate of 1.36%," according to financial planner Yasuhiko Fukano.
On the other hand, the shares are unlisted and have extremely low liquidity. They cannot be transferred for five years except in special circumstances, such as inheritance or a tender offer. In this regard, they are very different from corporate bonds.
"If you choose to invest, it's better to do so within the limits of your extra cash," investment adviser Hideki Oe said.
The shares can be converted into common stock after five years. But given their high purchase price, they are not likely to yield much in the way of gains. And future interest hikes may diminish their appeal.
Citing the severe restrictions on transfers, some overseas investors complain that the company may be cherry-picking its shareholders. Effectively guaranteeing principal will compromise oversight of management, these critics argue.