Struggling Sharp Corp. said Thursday it has put up some of its properties, including its Osaka headquarters and flagship Kameyama plant in Mie Prefecture, as collateral for ¥150 billion in fresh bank loans, confirming earlier news reports.
The move underlines the deteriorating finances of the major maker of TVs and LCDs, which is saddled with massive short-term debts due this month.
Of Sharp’s ¥1.2 trillion in overall debt as of the end of June, as much as ¥362 billion in commercial paper matures this month.
Redemption of the short-term security is destabilizing the troubled company’s cash flow, and its major creditor banks — Mizuho Corporate Bank and Bank of Tokyo Mitsubishi UFJ — have urged it to take drastic steps to turn around its loss-making business as soon as possible.
“It is true we put up the collateral for a maximum of ¥75 billion in loans from each of the banks,” Sharp spokeswoman Miyuki Nakayama said Thursday, confirming domestic media reports. She added that the properties include some other buildings and offices in Japan, but declined to specify them.
Market players apparently believe Sharp’s risk of bankruptcy has significantly increased. Its credit default swap premium, which is widely regarded as an indicator of credit risk, has more than tripled since early August and stood at 1,915.41 basis points Wednesday, according to Tokyo Financial Exchange Inc.
On Wednesday, Moody’s Investors Service downgraded Sharp’s short-term rating from “Prime-3″ to “Not Prime,” or junk status.
Moody’s said in a statement Wednesday that Sharp’s efforts to generate cash, including restructuring operations, cutting 5,000 jobs, shrinking inventory and selling assets “will take time to execute and cash outlays for the restructuring measures will add to its near-term liquidity needs.”
Sharp previously raised funds by issuing corporate bonds and commercial paper on the back of its strong credibility. Banks did not require collateral to extend loans to the firm.
However, the ailing maker is now finding it difficult to issue new security for refinancing.
On Aug. 31, Standard & Poor’s also cut its credit rating on Sharp to “noninvestment” — a two-notch drop to BB+ — and issued a warning that the maker of Aquos televisions suffers from anemic cash flow and deteriorating market conditions. The rating company also cut Sharp’s short-term rating to B.
Analysts said the company’s already announced reforms were inadequate.
“Sharp’s additional restructuring reforms do not appear to be enough and further reforms look necessary to win bank support,” Yuji Fujimori, a consumer electronics analyst for Barclays Securities Japan Ltd., said in a report Monday.
The report was released following an interview by the financial daily Nikkei Shimbun with Sharp President Takashi Okuda. In the interview, Okuda mentioned a plan to sell TV plants in China and Mexico to Hon Hai Precision Industry Group, better known as Foxconn, and make additional workforce and bonus cuts.
But the outlook for talks over a stake sale to Hon Hai remain unclear, further clouding the prospects for the electronics maker.
Sharp has already put up 15 million shares in audiovisual equipment maker Pioneer Corp. and 1,800 shares in Web content maker Neos Corp. to each of the two major creditor banks as collateral for fresh loans.
“Sharp’s liquidity profit is under pressure due to the company’s high level of short-term debt and weak operating performance,” Moody’s said in a statement Wednesday.
S&P said Sharp needs to curtail its dependence on short-term debt.
“To lessen its dependence on short-term debt, Sharp needs to sell its assets, increase the term length of its debt and improve its core business,” said Daisuke Fukutomi, a consumer electronics analyst at Standard & Poor’s Ratings Japan K.K., who added that none of this is easy right now for Sharp.
Sharp widened its full-year loss forecast eightfold last month to ¥250 billion against ¥30 billion announced in April due to the strong yen, tough competition and the global slump in demand for TVs.
Hon Hai founder Terry Gou left Japan last week without clinching a deal with Sharp.
In March, Hon Hai, which makes Apple Inc.’s iPad and iPhone, agreed to buy 9.9 percent of Sharp for ¥67 billion in a sale of new shares. But Sharp share prices have fallen sharply and the two firms are renegotiating the terms of the capital tieup.
Sony unit compromised
A mobile phone unit of Sony Corp. has come under cyber-attack, possibly leading to a leak of personal information on at least 400 Chinese and Taiwanese customers, including their names and email addresses, company officials said Thursday.
The possibly compromised data, stored in servers run by a firm to which Sony Mobile Communications Japan Inc. outsources some operations, do not include such information as credit card numbers and bank accounts, the officials said.