Japanese companies in dash for cash; risks may grow

* Five-fold jump in equity raisings in H1

* Bond raisings up 32 pct in first-half

* Concerns rise about quality of issues, dilution of holdings

By Junko Fujita

TOKYO, July 3 (Reuters) - Japanese companies raised $17 billion from resurgent equity markets in the first half, a five-fold jump from a year earlier, and seem hungry for more to replenish capital and fund investments.

While the trend is a boon for investment banks, bringing in more than $700 million in fees from managing the offerings, it could hurt investors by diluting the value of their holdings or triggering share price falls.

There is also the risk that companies with patchy records and hazier outlooks may attempt to cash in.

The bulk of the capital raising so far has come from banks and brokers, such as Sumitomo Mitsui Financial Group (8316.T) and Nomura Holdings (8604.T), which were under the most immediate pressure to bolster capital depleted by the financial crisis.

But the fund-raising rush will likely spread to a wider range of sectors as managers grow more confident the global economy has stabilised and look to strike while the stock market is still firm, analysts, bankers and lawyers say.

"It's not just banks and brokers anymore," said Seishi Ikeda, a lawyer specialising in capital markets at Baker & McKenzie in Tokyo. "A year ago good companies couldn't do equity finance because the market was dead. But now any healthy company can."

Encouraged by a 40 percent rally in Japanese stocks off a 26-year low in early March, companies sold $17.4 billion worth of new shares in January-June, Thomson Reuters data show. About 70 percent of that tally came from Nomura and SMFG, whose $9.4 billion share sale was Japan's biggest in eight years.

The second-half started off with a bang. This week All Nippon Airways (9202.T) announced it would raise up to $1.9 billion, while leasing and property firm Orix Corp (8591.T) said it would sell about $1 billion in new shares. [ID:nT105398] [ID:nT226132]

So far investors seem willing to buy into the offerings, as long as the company can illustrate a convincing strategy for how they will use the funds to drive growth.

Shares of Orix fell 5 percent on Wednesday after Reuters and other media reported its share issue, which would increase the number of shares by 20 percent. But it has since regained that ground and more, closing Friday up 7 percent.

In addition to repaying debt, Orix said it would use the funds to fuel its expansion in Asia, buy real estate assets and bolster its financial solutions business.

"Investors globally have good appetite and they have plenty of cash. And those companies so far are explaining how they would grow with the new money," said Shinichi Ichikawa, chief equity strategist at Credit Suisse Securities.

"The potential risk to investors is that companies without any growth scenario would start selling shares."

BOND SALES

Japanese companies have also been actively tapping the bond markets, selling 6.4 trillion yen ($67 billion) worth of debt in the past six months, 32 percent more than the same period a year earlier and the highest level in a decade, according to Thomson Reuters data.

But as long as the stock market remains buoyant, the lure of issuing shares will remain strong, especially among companies whose capital structure is too light on equity or heavy on debt.

Toshiba Corp (6502.T) is a case in point. The electronics conglomerate sold about $3 billion in new shares in May, a move it estimated would improve its shareholders' equity ratio to 13 percent from a lowly 8 percent at the end of March.

"Japanese companies wanted to boost capital by selling shares so badly but the sluggish market didn't allow them to do so," said Katsuhiro Mori, a fund manager at Daiwa SB Investments. "They raise money when then can. And they will continue to do so until the market can no longer digest it."

Investment banks may be the biggest winners from this trend. Underwriting fees for Japan share sales jumped almost five times to $727 million in January-June, according to Thomson Reuters data, giving a much needed boost to brokers like Nomura and Daiwa Securities group (8601.T), both of which fell deep into the red in the last financial year.

Daiwa Securities SMBC, an investment banking venture between Daiwa Securities and SMFG, was the top fee earner with $225 million, while Nomura raked in $168 million. Goldman Sachs (GS.N) ranked third with $90 million.

For investors there is a risk that companies without strong growth prospects will take advantage of improved sentiment and flood the market with new stock. That could lead to an oversupply of shares and put downward pressure on the broader market.

"This trend will continue and the fund raising will involve more varieties of industries," said a Tokyo-based investment banker, noting that some companies were rushing to raise funds now as a buffer against the next potential downturn. "Companies are raising money to prepare for an emergency." (Additional reporting by Nathan Layne; Editing by Muralikumar Anantharaman)