Asian Stocks Decline as Share Sales Spark Dilution Concerns

By Patrick Rial and Masaki Kondo

June 29 (Bloomberg) -- Asian stocks slumped in afternoon trading on concern equity sales by Daiwa Securities Group Inc. and Mizuho Financial Group Inc. will dilute shareholder value.

Daiwa, Japan’s No. 2 brokerage, tumbled 12 percent after saying it plans to raise about 240 billion yen ($2.5 billion) in a share sale. Mizuho, Japan’s third-largest bank by market value, lost 3.4 percent after people familiar with the matter said it may start selling shares as early as this week. JTEKT Corp., a parts affiliate of Toyota Motor Corp., rose 1.9 percent after Japanese industrial production rose for a third month. Daewoo Engineering & Construction Co. soared 7 percent after its parent put forward a plan to sell as much as 72 percent of South Korea’s biggest builder.

The MSCI Asia Pacific Index fell 1 percent to 102.58 as of 3:38 p.m. in Tokyo, the benchmark’s first decline in four days. About two shares sank for every one that gained. The gauge has risen 45 percent from a five-year low reached in March.

“Investors are skeptical Daiwa’s share sale will offset the negative impact of dilution and boost the brokerage’s earnings under these difficult conditions,” said Masaru Hamasaki, a Tokyo-based senior strategist at Toyota Asset Management Co., which oversees $15 billion. “Revenue from broking remains stagnant, demand for merger and acquisition won’t recover anytime soon and investment banking isn’t as profitable as before.”

Japan’s Nikkei 225 Stock Average slumped 0.9 percent to 9,791.97. The nation’s industrial production rose 5.9 percent in May from a month earlier, the Trade Ministry said today, matching the fastest pace of expansion since 1953.

6-Month Performance

Pepinnini Materials Ltd. soared as much as 24 percent in Sydney after announcing it found gold mineralization in rock samples from the state of Queensland. Kweichow Moutai Co. jumped 6.6 percent in Shanghai on speculation the spirits maker will increase prices.

Futures on the Standard & Poor’s 500 Index fell 0.5 percent. The S&P 500 lost 0.6 percent on June 26 after the Commerce Department said the savings rate among Americans rose to a 15- year high of 6.9 percent in May, raising concern demand for electronics and autos won’t rebound.

Most regional markets fell except for those in China, New Zealand, Malaysia, India, Pakistan and Sri Lanka.

For the first six months of the year the MSCI Asia has jumped 15 percent, the best first half since 1999. That compares with a 1.7 percent advance for the S&P 500, while Europe’s Stoxx 600 gauge rose 3.1 percent.

No Value Created

Daiwa plunged 12 percent to 587 yen, the steepest drop since April 2000. On June 26 the company announced plans to issue new shares for the first time in two decades. The stock had climbed as much as 114 percent from the March low.

“As the repayment of borrowings does not create value, issuance will lead to dilution in the near term, and we lower our target price,” Makoto Kasai, an analyst at Nikko Citigroup Ltd., wrote in a report dated today. “We believe the offering will be negative for the share price in the near term as we had not thought this much additional capital would be needed.”

Mizuho fell 3.4 percent to 229 yen, reversing an early gain. The bank plans to begin marketing about 600 billion yen in new common stock to investors as early as this week, two people with knowledge of the matter said. Mizuho, which posted a 588.8 billion yen loss for the latest financial year, said May 15 it plans to sell shares within a year in its first global offering.

Nomura Holdings Inc., Japan’s largest brokerage, retreated 4.2 percent to 796 yen. Mitsubishi UFJ Financial Group Inc., the country’s biggest lender by value, lost 2.8 percent to 595 yen.

Industrial Production

JTEKT added 1.8 percent to 969 yen. Mitsubishi Heavy Industries Ltd., Japan’s largest maker of heavy equipment, rose 1 percent to 401 yen. The company will double the number of workers at its nuclear power business in the U.S. to prepare for expected demand, the Nikkei newspaper reported.

Japan’s factory output rose 5.9 percent in May from the previous month, the Trade Ministry said today, matching a pace of expansion in April that was the fastest since 1953. Meanwhile, New Zealand’s exports increased 5.8 percent from a year earlier, Statistics New Zealand reported today.

Stocks on MSCI’s Asian index trade at 23.5 times estimated earnings, compared with 15.5 times for the S&P 500 and 12.8 times for Europe’s Stoxx 600.

‘Out of Steam’

“We are going to run out of steam on this rebound in economic activity,” said Takashi Kamiya, who helps oversee some $16 billion at T&D Asset Management Co. in Tokyo. “The year-on- year comparisons for interest rates and oil prices will worsen, while the impact from stimulus measures will diminish.”

Daewoo Engineering soared 7 percent to 13,750 won. Kumho Asiana Group will consult advisers and creditors to plan the sale of as much as 72 percent of South Korea’s largest builder, Kumho said in an e-mailed statement. The stake, with a market value of 3 trillion won ($2.34 billion) as of June 26, was purchased in 2006 for 6.43 trillion won.

GS Yuasa Corp., which makes lithium batteries for Mitsubishi Motors Corp., plunged 11 percent to 843 yen after Goldman Sachs Group Inc. initiated coverage on the company with a “sell” rating, citing the stock’s high valuations.

“The stock has surged on growing expectations for car li- ion batteries, but even factoring in future potential we think it is overvalued at current levels,” said Goldman analyst Takashi Watanabe said in a report dated on June 26.

New Zealand’s NZX 50 Index added 0.2 gained after exports increased in May and home-building approvals rose for the third time in four months. Pumpkin Patch Ltd., a children’s clothing retailer, soared 5.5 percent to NZ$1.35.

Pepinnini, Kweichow

Pepinnini jumped 13 percent to 0.36 Australian cents. The mining company said in a statement it found high-grade gold mineralization in Queensland.

Kweichow Moutai soared 6.6 percent to 146.00 yuan in Shanghai. Rival Shanxi Xinghuacun Fen Wine Factory Co. raised the price of its 10-year-old Fenjiu liquor by 10 percent starting on June 26, it said in a statement to Shanghai’s stock exchange over the weekend. The stock is suspended from trading today because of a shareholder meeting. It gained 6 percent to 23.92 yuan on June 26.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net