August 27, 2012 / 7:30 AM / 5 years ago

UPDATE 1-Japan's Aozora Bank sets $2.9 bln plan to repay public funds

* To spend Y227.6 bln to pay back Y180 bln public bailout money

* To buy back 20 pct of common shares to boost share price

TOKYO, Aug 27 (Reuters) - Mid-sized Japanese lender Aozora Bank said it will spend 227.6 billion yen ($2.9 billion) over a decade to pay back about 180 billion yen in public funds, ending months of speculation on how and when it will return the bailout money injected during Japan’s financial crisis.

Aozora, half-owned by private equity firm Cerberus Capital, also said on Monday it may be able to pay back all of the public funds before the planned 2022 deadline.

The lender has been under growing pressure recently to come up with a bailout money payback plan as the bulk of its preferred shares owned by the government are set to be converted into common shares in October, which will trigger a massive dilution in shareholder value.

Under the plan, Aozora will buy back 22.7 billion yen worth of preferred shares from a government-backed body by the end of March next year, pending shareholders’ approval.

The bank said it will pay back the rest of the public funds over 10 years. Separately, it will buy back 330 million common shares, or about 20 percent of its outstanding shares, starting in October, to boost its share price.

Aozora, formerly called Nippon Credit Bank, was temporarily put under government control during Japan’s financial crisis of the late 1990s, when banks were sinking under the weight of loans that went sour with the bursting of an asset bubble that had emerged a decade earlier.

Aozora said it will seek shareholder approval to extend the preferred shares’ conversion date to June 2022 to carry out the payback plan. The bank is scheduled to hold an extraordinary shareholders’ meeting on Sept. 27.

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