Sharp shares tumble as investors worry about survival
UPDATED @ 01:24:46 PM 03-08-2012
Sharp Corp’s President Takashi Okuda attends a news conference in Tokyo August 2, 2012. — Reuters picTOKYO, Aug 3 — Sharp Corp shares plummeted today as investor doubts grew about whether Japan’s last major maker of television panels, which is struggling with losses that are bleeding it of cash, will survive the sunset of country’s TV industry.
Revealing an expected operating loss this business year of ¥100 billion (RM4 billion) and announcing 5,000 job cuts, its first in six decade, the maker of Aquos TVs yesterday said its main banks Mizuho Financial Group and Mitsubishi UFJ Financial Group were ready to back it up.
Unconvinced, investors responded today by dumping its stock, which slid as much 30 per cent to ¥188. Sharp declined to comment on the share drop.
A net loss of ¥138 billion in the three months ended June 30 took a big chunk out of Sharp’s capital. Shareholders’ equity ratio slumped to 18.7 per cent from 23.9 per cent at the end of March, falling below the 20 per cent threshold generally considered to be healthy.
Sharp slashed its earnings forecast to a full-year operating loss of ¥100 billion from an earlier estimate of a ¥20 billion profit.
“With Sharp’s losses growing to this level, there’s barely going to be any net capital left,” said Makoto Kikuchi, CEO of Myojo Asset Management in Tokyo.
Hammered
Like rival local TV makers Sony Corp and Panasonic Corp, Sharp has been hammered by waning global demand and aggressive overseas competitors led by Samsung Electronics that are grabbing a bigger slice of that shrinking pie.
Combined the three Japanese TV makers this business year expect to sell around 10 million fewer TVs than they did the previous year.
While Sony has movie studios, an insurance business and a gaming unit, and Panasonic builds batteries and automotive devices that can offset TV losses, Sharp has fewer options to retool.
Underlining a looming cash crunch, Sharp’s credit default swap spreads — the cost of insuring its debt against default — have been widening since February, with the five-year contract currently at an all-time high of 833.3/1000.
In the past month the CDS curve has shown a dramatic inversion, which means it is now more expensive to buy insurance against default for shorter maturities than longer maturities. Such an inversion is usually seen in small, fragile companies.
Its next financing hurdle is a ¥200 billion convertible bond that matures in September next year. It was issued in October 2006 when the stock was trading above ¥2,000 at a conversion price of ¥2,531.
“They’ll get support from the banks and get through their immediate funding concerns... but they’re going to have to do some equity financing to strengthen their capital base,” Myojo’s Kikuchi said.
Moody’s new rating also reflected expectations that Sharp could deal with its short-term debts. But it kept the rating under review for a further downgrade, saying it would monitor Sharp’s ability to reduce its short-term debts in a timely manner.
Hon Hai help?
One option for Sharp could be to seek more investment from Taiwan’s Hon Hai Precision Industries, part of the Foxconn Group. In March it agreed to buy a 46.48 per cent in Sharp’s LCD plant, Japan’s most advanced, in Sakai. Losses at the underutilised facility in western Japan have been responsible for much of the company’s losses.
Hon Hai also agreed to purchase new shares in its fellow Apple Inc supplier worth ¥66.9 billion, giving it an 11 per cent stake in the Japanese company. Hon Hai has yet to stump up the money for that deal, which values Sharp’s new shares at ¥550.
Sharp’s president, Takashi Okuda, at a briefing yesterday, before today’s stock slump, said Hon Hai would honour its agreement to buy the stock at the agreed price.
In June, when Sharp’s shares were trading above ¥400 its chairman, Terry Gou, told an annual general meeting Hon Hai was in talks with Sharp about increasing its stake. Local media later reported that Hon Hai hoped to seek a board membership in Sharp. — Reuters
