Taiwan’s Hon Hai Precision Industry Co. may delay until next week the signing of a deal to acquire struggling Japanese electronics maker Sharp Corp., due to ongoing talks with Sharp’s two main creditor banks over the firm’s potential future losses.
In the wake of the recent revelation of Sharp’s contingent liabilities totaling about ¥350 billion, Hon Hai, also known as Foxconn Technology Group, is discussing a possible review of support for Sharp with the two banks — Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ, sources said Tuesday.
The major Taiwanese contract electronics manufacturer is asking the banks for a certain level of support to help to prepare for possible future losses from the contingent liabilities, the sources said.
Under the circumstances, there could be a delay in Hon Hai’s official decision on the Sharp bailout, and the conclusion of the deal may be delayed to next week from within this week as currently envisioned, according to the sources.
Still, the basic bailout framework that calls on Hon Hai to invest ¥489 billion in Sharp will be maintained, the sources said.
Of the ¥350 billion in contingent liabilities, tens of billions of yen are expected to actually become losses, according to the sources.
Hon Hai is at odds with Sharp and the two banks over the amount of potential losses from the contingent liabilities that should be reflected in the bailout plan for Sharp, the sources said, adding that they are discussing the matter.
To prepare for possible future losses, Hon Hai is asking Mizuho and Tokyo-Mitsubishi UFJ to accept a cut in the price at which the firm would buy preferred Sharp shares held by the banks from the currently planned ¥100 billion or to set a new line of credit for Sharp, the sources said.
Contingent liabilities are potential liabilities that may become financial obligations depending on uncertain factors such as lawsuit results and accounting changes.
Meanwhile, Mizuho and Tokyo-Mitsubishi UFJ have started talks with other financial institutions on refinancing their ¥510 billion in syndicated loans to Sharp that are due at the end of this month, the sources said.
The interest rate on the refinanced loans would likely be set at a level lower than that on the outstanding loans, the sources said.
Sharp submitted a list of ¥350 billion in contingent liabilities to Hon Hai on Feb. 24, the day before the Japanese firm decided to accept Hon Hai’s bailout offer.
To examine the list, Hon Hai put off its conclusion of the bailout deal with Sharp that had been slated for Feb. 26.