Business / Corporate

Sharp mulls substantial capital reduction to ease tax burden

Kyodo

Sharp Corp. is considering reducing its capital substantially to put itself into the tax category of “small- and medium-size companies” to ease its tax burden, sources said Saturday.

The struggling electronics maker plans to cut its capital from the current ¥120 billion ($1 billion) to ¥100 million or less, the corporate tax threshold for small- and medium-size companies, according to the sources.

The move, which is very unusual for companies like Sharp, which has consolidated sales of nearly ¥3 trillion, has been largely endorsed by its creditor banks, the sources said.

The capital reduction, which would help Sharp wipe out its accumulated losses, will be proposed at a general shareholders’ meeting in June, they said. The plan will be announced Thursday along with the company’s latest earnings report and its new medium-term management program, according to the sources.

Unlike in the case of 100 percent capital reductions by bankrupt firms, the 99 percent reduction eyed by Sharp will keep existing shareholders’ voting rights intact.

Sharp is likely to have a net loss of about ¥200 billion in the fiscal year that ended in March, with the red ink expected to continue in the current year. The company is considering extensive restructuring measures, including a cut of some 5,000 jobs at home and abroad as well as plant closures.

Sharp has effectively gotten the green light to receive ¥200 billion in financial support from its two main creditor banks — Mizuho Bank and the Bank of Tokyo-Mitsubishi UFJ — and is also planning to receive ¥25 billion from a corporate reconstruction fund that the two banks have invested in, according to sources close to the matter.