REG - Mitsubishi Corp. - Conversion into Subsidiary and Loan Agreement
Translation of report filed with the Tokyo Stock Exchange on May 9, 2019
Announcement Concerning MC's involvement in
Chiyoda Corporation's Financial Reinforcement Plan
(Conversion into Subsidiary Following Third-Party Allotment and Loan Agreement)
Mitsubishi Corporation (MC) hereby announces that the below resolution on the financial reinforcement plan for Chiyoda Corporation (Chiyoda) was passed at MC's Board of Directors' meeting on May 9, 2019.
I. Third-Party Allotment and Loan Agreement
1. Background
In 2008, MC underwrote the issuance of third-party shares by Chiyoda and made it an equity-method affiliate. The two companies formed a capital and business alliance, under which MC agreed to provide Chiyoda with management and sales support to enhance its corporate value.
In its "Notice of Revisions to Forecast of Consolidated Results and Dividend" announced on October 31, 2018, Chiyoda downwardly revised its full-year consolidated financial forecast for the fiscal year ending March 31, 2019, mainly due to a substantial increase in construction costs for previously contracted projects. On February 13, 2019, Chiyoda announced its "Consolidated Financial Results for the Nine Months Ended December 31, 2018," which revealed a net loss of 128.2 billion yen.
Having been requested by Chiyoda to help shore up its financial situation, MC has performed its due diligence on the company and made the decision to increase its capital commitment to Chiyoda through the subscription of additional third-party shares. MC has also decided to enter into a loan agreement with Chiyoda through MC's wholly owned subsidiary, Mitsubishi Corporation Financial & Management Services (Japan) Ltd.
2. Subscription of Third-Party Allotment
(1) Payment Date
July 1, 2019
(2) Number of New Shares
To Be Subscribed
175,000,000 A-class preferred shares of Chiyoda Corporation
(3) Price of Shares
To Be Subscribed
400 yen per share
(4) Total Subscription
Amount
70,000,000,000 yen
(5) Method of Subscription
(Subscribed Party)
MC will subscribe all of the A-class preferred shares through a third party allotment
(6) Other
The subscription described herein assumes that all related resolutions and amendments to Chiyoda's Articles of Incorporation will be adopted at Chiyoda's 91st general meeting of shareholders, which is scheduled to be held on June 25, 2019.
*For details, please refer to the announcement by Chiyoda dated May 9, 2019.
3. Loan Agreement
(1) Lender
Mitsubishi Corporation
Financial & Management Services (Japan) Ltd.
(2) Loan Amount
90,000,000,000 yen
4. Use of Funds
MC and Chiyoda have agreed that the funds procured by Chiyoda by the abovementioned subscription and loan agreement shall be used as follows to help realize Chiyoda's revival plan:
(1) As working capital for current projects and future contracts
(2) To execute the structural reforms required to dramatically reduce costs
(3) To strengthen construction management capabilities and invest further in IT management
II．Conversion into Subsidiary
1. Background
Although the A-class preferred shares will not give MC any additional voting rights at Chiyoda, MC does have the option of converting them into common stock after July 1, 2019. MC has been using International Financial Reporting Standards (IFRS) since its financial statement for the year ended March 2014. In addition to defining terminology, format and manner of preparation for consolidated financial statements, IFRS allows for exercisable potential voting rights in subsidiaries to be considered when determining whether or not to include them in consolidated reporting. Accordingly, for accounting purposes MC will be treating Chiyoda as a consolidated subsidiary once the necessary approvals are obtained. The timing for this has yet to be determined.
2. Chiyoda Corporation
(1)
Company Name
Chiyoda Corporation
(2)
Address
4-6-2 Minatomirai, Nishi-ku, Yokohama-shi, Kanagawa
(3)
Names and Titles
of Representative
Masaji Santo, President and Chief Executive Officer
(4)
Summary of Business
Integrated engineering business including consulting, planning, engineering, procurement, construction, commissioning and maintenance for industrial plants
(5)
Capital Stock
43 billion yen
(6)
Date of Establishment
January 20, 1948
(7)
Major Shareholders and Shareholding Ratio
Mitsubishi Corporation 33.39%, The Master Trust Bank of Japan, Ltd. (Trust A/C) 3.95%, MUFG Bank, Ltd. 3.47%, etc.
(8)
MC's Relationships
Capital Relationship
Chiyoda is an equity method affiliate in which MC has a 33.39% equity interest.
Human Relationship
One Chiyoda director is MC officer.
Trading Relationship
MC and Chiyoda are business partners in the industrial plant and infractructure sectors.
(9)
Consolidated Financial Position and Operating Results (Past 3 years)
Fiscal Year Ended
March 2016
March 2017
March 2018
Net Assets (million yen)
202,128
157,125
159,418
Total Assets (million yen)
528,219
461,331
420,704
Net Assets per Share (yen)
722.9
599.8
608.4
Sales (million yen)
611,548
603,745
510,873
Operating Profit (million yen)
16,015
15,680
△12,330
Ordinary Profit (million yen)
16,205
△3,080
△10,100
Net Income Attributable to Owners of the Parent (millions yen)
3,375
△41,116
6,445
Net Income per Share (yen)
13.0
△158.8
24.9
Dividend per Share (yen)
10
6.0
7.5
*Chiyoda's financial position and operating results for the fiscal year ended March 2019 are scheduled to be announced today.
3. Number of Shares To Be Acquired, Acquisition Value, and Number of Shares Held Before and After Proposed Acquisition
(1)
Number of Common Shares Held Before Proposed Acquisition
86,931,220 (Number of voting rights: 869,312）
(Voting rights holding ratio: 33.57%)
(2)
Number of Shares To Be Acquired
175,000,000 A-class preferred shares (No voting rights)
(3)
Acquisition Value
70,000,000,000 yen
(4)
Number of Common Shares Held After Exercising all Conversion Rights of A-Class Preferred Shares
786,931,220 (Number of voting rights: 7,869,312）
(Voting rights holding ratio: 82.06%)
* In calculating the amount of common shares to be issued for one A-class preferred share, MC assumes that conversion will be at the initial conversion price of 100 yen per A-class preferred share and that the dividend on those shares will have been paid in full by the time MC exercises its conversion right.
4. Schedule
(1)
Board of Directors Resolution Date
May 9, 2019
(2)
Contract Execution Date
May 9, 2019
(3)
Issuance Date of Class-A Preferred Shares
July, 1, 2019 (planned)
(4)
Exercise Date of Common Shares Conversion Right
Undecided
(After July 1, 2019 and granting of necessary approvals)
5. Future Outlook
(1) Regarding Conversion Right of A-Class Preferred Shares:
After MC has increased its capital commitment to Chiyoda through the subscription of these third-party shares, it will own 175,000,000 of Chiyoda's A-class preferred shares. Although these shares will not give MC any additional voting rights at Chiyoda, after July 1, 2019, MC will have the option of converting them into 700,000,000 common shares. Should MC choose to exercise this option, it will have 786,931,220 (adding to the 86,931,220 common shares that it already owns in Chiyoda), giving it 82.06% of the company's voting shares. In calculating the amount of common shares to be issued for one A-class preferred share, MC assumes that conversion will be at the initial conversion price of 100 yen per A-class preferred share and that the dividend on those shares will have been paid in full by the time MC exercises its conversion right.
(2) MC has been using IFRS since its financial statement for the year ended March 2014. In addition to defining terminology, format and manner of preparation for consolidated financial statements, IFRS allows for exercisable potential voting rights in subsidiaries to be considered when determining whether or not to include them in consolidated reporting. Accordingly, for accounting purposes MC will be treating Chiyoda as a consolidated subsidiary once the necessary approvals are obtained. The timing for this has yet to be determined.
-End-
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