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By Bloomberg

Toyota Motor Corp. plans to replace as much as 500 billion yen ($4.2 billion) of common equity with unlisted shares that have transfer restrictions, locking in longer-term funding as the carmaker develops new technology.

The automaker will sell as many as 150 million “Model AA” shares, named after its first passenger car, it said Tuesday in a filing to Japan’s Finance Ministry and on its website. The shares will be sold for at least a 20 percent premium over common stock, and the funds will be used for research and development, including work on fuel-cell cars, Toyota said.

Toyota is restricting trading of the shares for a period of about five years, while enticing investors with a dividend and the option of selling them back at the issue price at the end of the period or converting them into common stock. The issue has more in common with convertible bonds than stocks, said Kazuyuki Terao, Tokyo-based chief investment officer at Allianz Global Investors Japan Co.

“The point here is Toyota guarantees the principal,” Terao said. “Toyota wants to have more stable individual investors.”

The automaker will initially sell as many as 50 million of the shares after the plan is approved at the company’s annual shareholder meeting in June, it said in the statement. The timing of additional sales hasn’t been decided, but they aren’t expected to take place more than once annually, Toyota said.

Currency Risk

The dividend will start at 0.5 percent, increasing by 0.5 percent each year to a maximum of 2.5 percent. The stock, to be sold in Japan, will have voting rights and won’t be listed.

Investors outside Japan may be deterred by the five-year lockup as it poses a currency risk, said Andrew Clarke, director of trading at Hong Kong brokerage Mirabaud Asia Ltd.

“Overseas investors would be worried about yen depreciation,” Clare said. “There’s no point investing in something that will give you a 2.5 percent yield in yen if the currency goes down 10 percent between now and then.”

Toyota began sales in December of the Mirai sedan, its first production car to run on hydrogen and emit only water. President Akio Toyoda billed Mirai as the car for the next 100 years last month in a meeting with about 4,000 individual investors in Nagoya, Japan.

While the automaker is embracing fuel-cell vehicles over plug-in electric cars, early sales will be limited because of the high cost to develop Mirai, which costs 7.24 million yen, as well as to build hydrogen refueling stations.

The company named Nomura Holdings Inc. as the underwriter for the sale in its filing.