Mired with losses, Japan's biggest electronics group by sales, Hitachi Ltd <6501.T>, is raising up to $4.6 billion to cut debt as it seeks to turnaround its sprawling businesses and also invest in new growth drivers.
The capital raising, the company's first in 27 years, follows similar moves by NEC Corp <6701.T> and Toshiba Corp <6502.T>, and sent Hitachi's shares down 8.5 percent in the biggest drop in six months on Monday even though markets expected the fund raising.
Some analysts said the company might be forced to tap markets again and that Hitachi had sought to seek money before it could form a realistic plan for recovery.
This amount is the absolute limit that Hitachi can seek from markets, but this may not be enough even to cover restructuring costs at such a mammoth firm, let alone invest in growth, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co.
I don't think investors will want to put their money in. There are so many more deserving companies that need funds.
Hitachi, a sprawling conglomerate with over 900 group firms and sales of 10 trillion yen, is headed for its fourth straight annual loss.
The group is seeing a recovery in its hard drives business and strong sales of its metals, cables and construction machinery but this has not been enough to counter the impact of losses in its flat TVs and semiconductors businesses.
Hitachi earns the bulk of its sales from making nuclear reactors, bullet train systems, elevators and from IT services. It will use almost half the money it raises to pay back debt, including short-term debt to cover a $3 billion bid to make five of its units wholly owned.
Hitachi, like many of its once high-flying peers, has lost market share in flat TVs and digital devices to rivals from South Korea and Taiwan.
It will use the rest of the funds to boost production capacity of nuclear reactors and lithium-ion batteries, expand its software services operations and develop its train systems.
Hitachi, which has a joint venture with General Electric
The capital raising is smaller than expected, and may mean that Hitachi expects to be able to sell some of its operations, said Credit Suisse analyst Hideyuki Maekawa.
One possibility might be an additional sale of Hitachi's stake in small to medium-size LCD business Hitachi Displays to Canon <7751.T>, he said.
This capital raising by itself has only limited impact on Hitachi's balance sheet, he said. If it does not succeed in selling more operations, there will be risk of another capital raising.
Hitachi, which supplies batteries to General Motors
Hit by losses, Hitachi's shareholders' equity ratio has slipped to just below 11 percent, roughly half that of rival NEC, which said earlier this month it would raise up to $1.5 billion.
The ratio is calculated by dividing shareholders' equity by total assets and is a measure of financial strength.
The share issue, due to take place between December 14 and December 17, will be arranged by Nomura Securities <8604.T> and Goldman Sachs
Japanese companies have already raised $40 billion through issuing common stock and convertible bonds this year. Sources said Mitsubishi UFJ Financial Group <8306.T>, Japan's largest bank, will issue about $11 billion in new shares to meet stricter capital requirements and boost lending in Asia.
Hitachi launched a bid earlier this year to make five listed units, including magnetic tape maker Hitachi Maxell <6810.T> and plant engineering firm Hitachi Plant Technologies Ltd <1970.T>, wholly owned.
Its chip venture with Mitsubishi Electric <6503.T>, Renesas Technology, is set to merge with chipmaker NEC Electronics <6723.T> next year.
(Editing by Joseph Radford and Anshuman Daga)