Promise shares slide on convertible bond issue

TOKYO (Reuters) - Shares of Japanese consumer lender Promise Co Ltd (8574.T: Quote, Profile, Research) were on track for their biggest one-day fall in six years on Wednesday after the company said it would issue $390 million in convertible bonds, raising concern about dilution and the moneylender's ability to fund its business.

Promise, which is about 20 percent owned by Japanese bank Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research), will become the latest Japanese moneylender to boost capital through convertible bonds.

The company said on Wednesday it will offer 42 billion yen ($390 million) worth of convertible bonds to help repay short-term debt acquired when it bought a rival last year.

Promise originally planned an issue of up to 60 billion yen, but scaled that back citing "unstable market trends".

Shares of Promise were down 12.4 percent at 2,470 yen by midafternoon trade in Tokyo, on track to book their biggest one-day fall since September 2002.

"I think this just highlights the narrowing funding opportunities available for companies in this sector," said Jason Rogers, a credit analyst at Barclays Capital.

"The medium-term prospects for the sector are very bleak. We've seen the capitulation of core operating profitability and a nose-dive in operating revenues, and this is likely to continue at least for the next couple of years," Rogers said.

Consumer finance firms have been hit hard by new government regulation that has lowered the maximum rate they can charge borrowers. They have also been forced to repay past charges that are now deemed illegally high.

Promise said it would use the funding to repay short-term debt through its $1 billion acquisition of smaller rival Sanyon Shinpan.