Mitsubishi Motors has asked DaimlerChrysler and other shareholders for a $940 million capital increase, a newspaper reported on Wednesday, but that amount would go only a little way towards solving its problems, analysts said.
Business daily Nihon Keizai said Mitsubishi Motors was considering issuing new shares worth 100 billion yen to DaimlerChrysler, Mitsubishi Heavy Industries and Mitsubishi Corp .
Japan's fourth-largest auto maker declined comment other than to call the report speculative.
A capital increase would be a strong show of support for the restructuring auto maker, which has been badly hurt by problems at its US sales finance firm.
"It would make the outlook less bleak but even with an extra 100 billion yen, this company is going to struggle," said Christopher Richter, an auto analyst at HSBC Securities.
"This would take them back to where they were at the beginning of the business year," he added, noting that the Japanese auto maker's debt had risen by some 130 billion yen as of end-September compared to end-March.
DaimlerChrysler said last week it might inject more capital but added it had no intention of boosting its 37 percent stake in Mitsubishi until the Japanese firm had improved its finances. A spokesman for the company declined to comment further on Wednesday's report.
Investors in DaimlerChrysler are worried about the looming burden of Mitsubishi on the German group as is battles to return its US Chrysler business to long term profits and make a success of the five-year old merger between Daimler-Benz and Chrysler.
At 0944 GMT, DaimlerChrysler shares were up 0.8 percent at 37.09 euros, under-performing other European auto stocks.
A Mitsubishi Motors source told Reuters last week that if other big shareholders such as Mitsubishi group firms bought stock in the company and other shares were offered to the market, there could be a capital increase without DaimlerChrysler lifting its stake in percentage terms.
Group firms such as Mitsubishi Heavy and Mitsubishi Corp have a combined holding of around 33.8 percent in Mitsubishi Motors.
This business year was meant to be the final phase of a three-year restructuring by Mitsubishi Motors, but the company has posted a huge first-half loss and forecast a net loss of 11 billion yen ($104 million) for the twelve months to March 31.
Financial troubles stemming from loose credit controls at its North American finance unit, which necessitated a large extraordinary provision, have come as a vicious price war in the US market escalated, causing sales there to slump.
"Mitsubishi Motors got around 100 billion yen when they separated the truck division off and if they are now asking for another 100 billion, we can say that their restructuring has been a failure," said Seiji Sugiura, an analyst at Nomura Securities.
As dilution concerns came to the fore, Mitsubishi Motors shares closed down 3.08 percent at 252 yen, erasing some of the heady gains made last week when DaimlerChrysler said it might help strengthen its Japanese partner's balance sheet.
The stock jumped 14 percent on Friday and rose another 1.56 percent on Tuesday to 260 yen. Monday was a national holiday.
"Any type of capital increase would be good news for Mitsubishi Motors, but investors are very cautious because of uncertainty about the details and worries about dilution from possible new share issues," said Yoshihisa Okamoto, senior vice president at Fuji Investment Management.
The share price has fallen around one percent since the beginning of last year, sharply under-performing a 20 percent climb in the transportation equipment sector.
Analysts said that, with a less than dynamic vehicle line-up, Mitsubishi Motors' near-term outlook would be determined by how well it managed to clean up the mess at its US finance unit and how well it weathered the price war there.
The Nihon Keizai said the capital increase could come as soon as March and would involve a private placement of new shares. It said the money would be used to develop new vehicles.
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