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By Bloomberg

A new type of security Toyota Motor Corp. is selling is proving a hit with Japanese people drawn to the combination of limited risk and fixed dividends that beat the near-zero interest on bank deposits.

Nomura Holdings Inc., the sole underwriter on the 500 billion yen ($4 billion) share sale, has cut the maximum amount of stock a single investor can buy after a flood of pre-orders, said people with knowledge of the matter. Toyota priced the unlisted Model AA shares, named after its first passenger car, at 10,598 yen apiece Thursday, representing a 30 percent premium on the closing price.

Investors will have to hold the shares for the first five years, picking up dividends along the way, before gaining the option to sell them back to Toyota for the purchase price if the value drops. That’s attractive for aging Japanese citizens who want limited risk and returns that outstrip those on the $7.2 trillion of cash and bank deposits they’ve piled up.

“Older folks and pensioners will prefer the Toyota shares,” said Tokio Goto, 78, a former company owner who is interested in buying the securities. “I’ve had my fingers burnt from investments in the past. People want to invest money in safer places because global markets are still volatile.”

There are drawbacks. The 30 percent premium over common equity sets a high bar for investors to profit from increases in the stock price after five years. They would also miss any opportunity to realize gains if the price climbs in the period.

Exceed Supply

That hasn’t dissuaded investors. Some of Nomura’s customers complained after being told they won’t be able to buy the stock because pre-orders were three to five times greater than the shares being offered, the people said, asking not to be named because the process is confidential. That prompted the brokerage to lower the maximum purchase amount to 500 million yen per person, they said.

The dividend will start at 0.5 percent, increasing by 0.5 percentage point each year to a maximum of 2.5 percent.

Toyota shares closed 0.2 percent higher at 8,153 yen Thursday, extending this year’s gain to 7.9 percent. Nomura fell 0.2 percent.

For Nomura, the sale is poised to be its biggest equity deal, eclipsing its role in an offering by Mitsubishi UFJ Financial Group Inc. in 2009, data compiled by Bloomberg show.

Kenji Yamashita, a Tokyo-based spokesman for Nomura, declined to comment, as did Nicholas Maxfield, a Toyota spokesman.

Shifting Savings

Japanese brokerages are benefiting as people gradually shift their cash hoards to investments amid a stock-market rally. The Nikkei 225 Stock Average touched the highest level since 1996 last month on optimism about the earnings outlook as the economy recovers.

Toyota will pay Nomura 22.5 billion yen in underwriting fees, according to Bloomberg calculations based on a regulatory filing made by the automaker Thursday. That’s about 4.5 percent, higher than the 4 percent average for the 10 biggest public offerings in Japan in the five years to December 2014, according to data compiled by Bloomberg.

Higher fees are understandable because sales staff will have to spend time explaining the product’s risks, and the Tokyo-based firm won’t get any commissions in the next five years because of the absence of any secondary trading, said Nobuyuki Fujimoto, a senior market analyst at SBI Securities Co.

If the Toyota deal is successful, other large companies such as Japan Tobacco Inc. could follow suit and make similar offerings, Fujimoto said. “Nomura may be able to get mandates from them,” he said.

‘Good Present’

Toyota won approval to sell the new class of stock to long- term shareholders at its annual investor meeting on June 16, with about 75 percent voting in favor. At the same time, proxy adviser Institutional Shareholder Services Inc. and investors including California State Teachers’ Retirement System criticized the offering for being restricted to Japan and lacking benefits for common stockholders.

“The Toyota deal will accelerate the trend of depositors transferring their money to securities investments,” said Goto, who owns 100 Japanese stocks including the carmaker and the underwriter. “This looks like a good present from Toyota to Nomura.”