Shinsei Bank to raise additional capital

The troubled Japanese bank, which was bailed out by US private equity firm JC Flowers for a second time in November 2007, is reportedly looking to raise about ¥50bn.

Japan’s Shinsei Bank, in which US private equity firm JC Flowers owns a stake of about one-third, has said that it will raise additional capital to strengthen its Tier I capital.

This will be done through the issuance of Tier I preferred securities to institutional and corporate investors in Japan. Shinsei plans to raise about ¥50 billion ($509 million; €400 million), according to a Bloomberg report.

The issuance of additional securities will not dilute the bank’s common stock and will increase its Tier I capital ratio to 7 percent, Rahul Gupta, the chief financial officer Shinsei Bank, told Bloomberg. The ratio was at 6.64 percent as of 31 December 2008, according to Bloomberg data.

The bank said in a statement that the capital raising measures are required to enhance its capital base. Shinsei is likely to experience a loss of ¥48 billion for the fiscal year ending March 31, Gupta said.

The report noted that other larger Japanese banks such as Mitsubishi UFJ Financial Group and Mizuho Financial Group have also raised capital as the value of their investments have declined.

In 2000, a JC Flowers and Ripplewood Holdings-led consortium acquired the Long-Term Credit Bank of Japan in a deal worth $1.2 billion and renamed it Shinsei. Following a restructuring of the bank’s operations, the firms sold it in what is regarded as one of the post lucrative private equity deals ever. Ripplewood and Flowers made about ¥2.2 billion in advisory fees immediately after the transaction, made $2.1 billion in profits from the bank’s IPO, and later earned $2.8 billion when they sold a one third stake in the bank, to reduce their voting rights to 2.56 percent.

Flowers came to the rescue of the bank for a second time in November 2007 after a 43 percent decline in the value of its shares in 2007, by acquiring a 32.6 percent stake for $1.8 billion.

At press time, Shinsei Bank's shares were trading at ¥73, a drop of almost 85 percent from the ¥474 that the shares were trading at in May 2008.

Elsewhere, the German government is reportedly taking legislative action that could lead to the nationalisation of troubled commercial real estate lender Hypo Real Estate, forcing a JC Flowers-led US consortium to sell its 24 percent stake in the company.