Sharp's axe too blunt; lenders to push for deeper restructuring

TOKYO Thu Aug 9, 2012 8:15pm EDT

TOKYO Aug 10 (Reuters) - Sharp Corp's leading bank creditors are likely to demand a more sweeping restructuring at the struggling Japanese TV and display maker as a condition for extending new loans, said people involved in the ongoing talks.

Sharp's two main lenders, Mizuho Corporate Bank and Bank of Tokyo-Mitsubishi UFJ (BTMU), are poring over the company's restructuring plan to determine how much it needs to survive as it also renegotiates terms of an investment by Taiwan's Hon Hai Precision Industry.

"Compared with Sony and Panasonic, Sharp's restructuring is not enough," said a senior banker at one of the two banks. "We will work out a plan by around mid-September to come up with a loan facility."

The banker and others involved in reviewing Sharp's business outlook declined to be named as those discussions are private. Spokespeople at both Mizuho and BTMU said their banks will support Sharp. A Sharp spokeswoman declined to comment.

The stakes are high for Sharp.

TOO FEW CUTS?

Shares in the century-old Osaka-based firm have slumped by around two-thirds since March, when Hon Hai, the world's leading contract electronics manufacturer and part of Foxconn Technology, agreed to buy around a 10 percent stake at 550 yen a share. As Sharp's condition has weakened - its shares last traded at 191 yen - Hon Hai has moved to renegotiate the March deal that would have seen it invest $844 million.

Last week, Sharp warned of a full-year net loss of 250 billion yen ($3.19 billion), eight times larger than its previous loss forecast. It is also cutting around 5,000 jobs, around a tenth of its workforce, as it battles weak demand for its Aquos TVs and competition from rivals led by South Korea's Samsung Electronics.

While the job cuts at Sharp are the first in six decades, some bankers question whether the restructuring is tough enough.

"The company has never done a restructuring before. It's like a wet mop. There's a lot of water that could be wrung out," said another senior banker at one of the main banks.

Hon Hai has said it is open to taking a larger stake in Sharp or renegotiating the share price of its planned investment. Both companies are suppliers to Apple Inc, and Hon Hai Chairman Terry Guo has said their partnership is an opportunity to challenge Samsung, Apple's main rival and one of its major suppliers.

At least one senior banker at one of Sharp's main banks did not rule out Hon Hai taking a larger share in Sharp that would give it board representation - though it's not yet known if any such proposal will emerge from the ongoing talks.

More immediately, Sharp faces a refinancing challenge.

In addition to the redemption of 200 billion yen ($2.6 billion) in convertible bonds due in September next year, Sharp has 360 billion yen ($4.59 billion) in short-term commercial paper. The cost of protecting Sharp's debt from default for five years has soared in the past month. Also, Markit data shows that 80.5 percent of Sharp shares available to be borrowed by short sellers betting on price falls were out on loan as of Tuesday, up from 75.6 percent the day before.

Mizuho Corp, part of Mizuho Financial Group, and BTMU, the core unit of Mitsubishi UFJ Financial Group, each have outstanding loans to Sharp of around 120 billion yen as of end-March, according to a creditor's memo seen by Reuters. Major life insurers also have extended loans to Sharp, including Nippon Life's 21.5 billion yen and Dai-ichi Life's 8.5 billion yen, according to the memo.

Officials at Sharp have contacted some life insurers recently, seeking meetings for a business review, said one person with knowledge of those talks.

MORE ENGAGED

The ongoing renegotiations between Sharp and Hon Hai make it tougher for Sharp's lenders as they don't know how much of the Taiwanese investment will materialise. Taiwan's Economics Ministry on Thursday pressed Hon Hai for more detail on the tie-up, saying the initial agreement looked expensive. Hon Hai needs ministry approval to inject cash into Sharp, a foreign company.

Sharp also has a reputation as a fiercely independent company and does not have as tight a relationship as other big Japanese firms with its main banks. That might not help in working on a turnaround plan, some bankers said.

Sharp, though, has become more engaged with its lenders, with its chairman Mikio Katayama meeting heads of BTMU and Mizuho in recent weeks, though the company has not yet disclosed all the data the banks are seeking, say people involved in the talks.

On top of deeper cost cuts, Sharp could look at additional asset sales, such as its solar panel and appliance units, bankers have said.

"Personally, I think it's fine for Hon Hai to take a 20-30 percent stake in Sharp. It would help Sharp's credit status," said a senior banker at one of the main banks.

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