Toyota group plans $4.7bn sale of Denso stake as electric pivot looms

Toyota Motor and two affiliates plan to sell about 10% of components maker Denso by year-end, a stake likely worth about $4.7bn (about R87.73bn), sources familiar with the matter said.

The sale of shares in Denso would mark the latest step by the world's top selling automaker to cash in on stakes in affiliates as it ramps up production of fully electric vehicles, a capital-intensive endeavour that spans research and development to an overhaul of the factory floor.

Toyota, Toyota Industries and Aisin will sell Denso shares worth a total of about 700-billion yen (R87.73bn) at current market prices, the two sources said.

Toyota Motor's portion of the sale will represent short of half of the roughly 10%, with Toyota Industries and Aisin making up the remainder, the sources added. Denso, a key Toyota supplier, is the world's second-largest maker of automotive components.

Denso also plans to buy back some of its own shares in the open market to offset the potential hit to its share price, according to the sources, who declined to be named because the matter remains confidential.

Denso said it was considering a share sale, a buyback and other capital measures, but nothing had yet been decided. A Toyota spokesperson said the company was not in a position to comment on Denso, while a Toyota Industries spokesperson said nothing had been decided. Aisin said reports of the share sale were not something it had announced itself.

At $4.7bn, it would be the second-biggest such share offering in Japan this year, after the more than $9bn (R167.83bn) sale of shares in Japan Post Bank in March, according to LSEG data.

It would also be the biggest share offering in the auto industry in more than a decade, highlighting the stakes involved in the pivot to battery electrics.

Cross-shareholdings

Japanese companies traditionally took stakes in their group affiliates or business partners, a practice known as cross-shareholding which critics said hampers corporate governance.

Companies have been slowly unwinding these holdings for years, but the trend gained momentum after the Tokyo Stock Exchange recently urged firms to improve their use of capital.

Toyota Motor, which held about 24.2% % of Denso as of the end of September, is expected to remain as the top shareholder.

Buyers of the shares are expected to largely be domestic investors, and the price has yet to be determined, the sources said.

Toyota in July said it would sell a stake worth about 250bn yen (R31.45bn) in telecoms company KDDI Corp after unveiling a sweeping plan to improve the driving range and cut costs of battery electric vehicles.

Denso shares, which were down almost 4% before the news, extended losses after the Reuters report and fell as much as 6.8% on the day, closing 4.9% lower. Toyota shares finished little changed, as did the benchmark Nikkei 225.