*****For immediate use November 15th, 2001
Issue of Trust Preferred Securities and Euro Yen Convertible Bonds
TOKYO, November 15th, 2001 - NEC Corporation ("NEC") (NASDAQ: NIPNY, FTSE: 6701q.l, TSE: 6701) has resolved at a meeting of the Board of Directors held today that it will raise a total of 200 billion Yen(100 billion Yen Trust Preferred Securities and 100 billion Yen Euro Yen Convertible Bonds) in the domestic and overseas capital markets.
This will be the first Trust Preferred Securities issuance by a Japanese industrial company.
The purpose of this financing is to build a solid financial foundation in a challenging business environment by increasing equity capital, while also minimizing to the extent possible the dilution of shareholder value. It is also consistent with the financial strategy that NEC has been pursuing to improve its financial structure: increasing shareholders' equity, reducing interest-bearing debt, improving its debt/equity ratio and enhancing profitability.
NEC intends to continue its efforts to increase its corporate value by making strategically necessary investments, implementing structural reforms of its businesses, and striving for earnings recovery.
<<Trust Preferred Securities>>
Trust Preferred Securities represent a form of hybrid financing (financing with both debt and equity characteristics) that has already developed to a considerable level of primary and secondary volume in the US and Europe. In the current transaction, a business trust established in the US and 100% controlled by NEC will raise funds by offering the Trust Preferred Securities primarily to Japanese retail investors. At the same time, the business trust will invest all such proceeds in subordinated debentures issued by NEC . Effectively, NEC will have raised funds as if it had directly issued the Trust Preferred Securities.
Unlike ordinary bonds, the Trust Preferred Securities have certain equity-like features such as having no predetermined maturity (Note 1), ranking junior to ordinary debt in the event of liquidation of NEC (Note 2), and allowing deferral of distributions for a certain period of time if NEC suspends dividends on its ordinary shares. As a result, the Trust Preferred Securities offer a higher yield (2.4% ~ 2.9% for the first five years) compared to ordinary bonds. At the same time, the Trust Preferred Securities are different from ordinary shares since distributions are at a fixed rate or determined on the basis of market interest rates rather than being linked to NEC's performance, so that the market price is not directly linked to the changing performance of NEC, and since there are no voting rights. As a result, the Trust Preferred Securities do not dilute return on earnings or voting rights for existing shareholders. NEC has obtained confirmation from the major rating agencies that they will recognize a considerable level of "equity credit" for the hybrid features of the Trust Preferred Securities.
NEC hopes that this offering of the Trust Preferred Securities will encourage the development of the Japanese market for hybrid securities to meet the increasingly diverse needs of both investors and issuers.
<<Euro Yen Convertible Bond>>
In addition to the Trust Preferred Securities, the Company will offer 100 billion Yen of Euro Yen Convertible Bonds mainly to institutional investors in the Euro market. In light of recent conditions in the Euro Yen convertible bond market, NEC believes it will be able to issue the Euro Yen Convertible Bonds with a zero coupon as well as a "high premium" conversion price in relation to NEC's recent stock price.
NEC aims to improve its earnings base over the medium-term by using the proceeds from the Euro Yen Convertible Bonds to implement a comprehensive reform of its business structure and to make strategic investments. NEC believes that improving its earnings over the medium-term should encourage conversion of the Euro Yen Convertible Bonds into ordinary shares and further enhance NEC's equity base. In addition, NEC seeks to minimize its funding cost by issuing zero coupon bonds.
For the summary of the terms of the Trust Preferred Securities and the Euro Yen Convertible Bonds, please refer to the Attachments.
About NEC Corporation
NEC Corporation (NASDAQ: NIPNY) (FTSE: 6701q.l) is a leading provider of Internet solutions, dedicated to meeting the specialized needs of its customers in the key computer, network and electron device fields through its three market-focused in-house companies: NEC Solutions, NEC Networks and NEC Electron Devices. NEC Corporation, with its in-house companies, employs more than 150,000 people worldwide and saw consolidated net sales of 5,409 billion Yen (approx. US$43 billion) in the fiscal year ended March 31, 2001. For further information, please visit the NEC home page at: http://www.nec.com
(Note 1) The Trust Preferred Securities do not have a predetermined maturity although they may be redeemed at the option of NEC beginning five years from the issue date. NEC believes it will be able to exercise this option only after it has sufficiently built its equity base through retained earnings or other methods.
(Note 2) The Trust Preferred Securities will be senior to ordinary shares.
This press release is intended as general information regarding NEC's issuance of convertible bonds and trust preferred securities and shall not be considered an offering of securities. Investors are advised to read the Offering Circular prepared by NEC for the offering of the convertible bonds and the Foreign Investment Trust Registration Statement prepared for NEC Business Trust prior to making their own investment decision relating to the convertible bonds or trust preferred securities. This press release shall not be construed as an offering of securities in the United States. The securities may not be offered or sold in the United States absent registration or an applicable exemption under the Securities Act of 1933. The convertible bonds and the trust preferred securities will not be offered in the United States and the convertible bonds will not be offered in Japan.