Panasonic comeback seen in biggest bond sale since 2011

Panasonic Corp. has completed the biggest bond sale to Japan’s institutional investors since 2011 after the electronics maker forecast its best profit in seven years.

The ¥400 billion offering included 10-year notes with a yield of 0.934 percent, compared with the 0.57 percent average for Japanese debt maturing between seven and 10 years, and 2.99 percent for large global industrials, according to Bank of America Merrill Lynch Indexes.

The cost to insure Panasonic debt from default has slumped to 39 basis points, from as high as 506 in November 2012, but lower than the 89 for Sony Corp. and 701 for Sharp Corp.

Panasonic predicts ¥175 billion in net income this fiscal year, after ¥1.5 trillion in combined losses in the two years to March 2013 shook investor faith in the 97-year-old company.

Moody’s Investors Service last month upgraded the Osaka-based manufacturer, citing its competitive market position in the housing and automotive-related businesses. By contrast, Sharp is considering “drastic reform” to reduce losses in its television operations.

“Panasonic has undertaken large-scale restructuring and pivoted away from consumer electronics to focus on business-to-business opportunities,” said Yoshihiro Nakatani, a senior fund manager at Asahi Life Asset Management. “The company has followed faithfully its recovery plan and you are seeing that in its earnings.”

In April, Panasonic reported its first full-year profit since 2011 after President Kazuhiro Tsuga halted production of money-losing plasma TVs and stopped developing smartphones for consumer use as part of his strategy of targeting businesses and reducing reliance on consumer goods.

By contrast, Sharp, once synonymous with cutting-edge TVs and home electronics, is considering options to restructure its liabilities, including a debt-for-equity swap, sources familiar with the matter said last week. They asked not to be identified because the talks are private.

Sharp had net debt of ¥723.8 billion at the end of December, according to data compiled by Bloomberg. In contrast, Panasonic had a cash surplus of ¥241.6 billion at the end of 2014 after net debt reached a high of ¥1.25 trillion in March 2012.

“It’s been a week where the fortunes of these two electronics makers have clearly diverged,” Mana Nakazora, the chief credit analyst at BNP Paribas SA in Tokyo, said in a report last week. “Sharp needs to undertake root-and-branch restructuring.”

In the latest sign of success with its efforts to move beyond consumer electronics, Panasonic earned ¥80.3 billion in operating profit from its automotive and industrial systems segment in the nine months to December, making it the single-biggest contribution to profit.

The company’s eco-solutions business, which includes lighting and housing-related materials, contributed ¥75.7 billion in profit, more than 3½ times the audio visual business.

As part of the company’s shift away from consumer electronics, it set up a manufacturing unit in the U.S. at Tesla Motors Inc.’s battery “gigafactory” in Nevada. The manufacturer, which was started in 1918 by Konosuke Matsushita and his wife and brother-in-law in a two-floor house, is also developing self-driving technologies for cars, including parking assistance.

Panasonic will use most of the bond proceeds for capital expenditure or acquisitions in the growth businesses of housing and auto-related businesses segments, said company spokesman Chieko Gyobu.

Moody’s raised Panasonic one level to Baa1 on Feb. 19, saying it expects the company to improve its profitability in the next 12 to 18 months after “very effective” restructuring efforts.

“Panasonic’s creditworthiness has improved above and beyond its ratings profile,” said Hidetoshi Ohashi, the chief executive officer of Japan Credit Advisory Co. “Investors judged favorably that the company was effectively debt free.”