UPDATE 4-Sharp's main lenders agree to $2.7 bln bailout -sources

Thu Sep 27, 2012 3:39am EDT

* Mizuho and BTMU to lend $2.7 billion - sources

* Lenders require cost-cutting measures at Sharp

* Sharp shares end down 3.9 pct vs 0.4 pct gain for Topix

By Taiga Uranaka and Taro Fuse

TOKYO, Sept 27 (Reuters) - Mizuho Financial Group and Mitsubishi UFJ Financial Group, the two main lenders to Sharp Corp, have approved a 210 billion yen bailout of Japan's troubled TV maker, sources said on Thursday, clearing a major obstacle to firm's survival.

The two banks have been orchestrating Sharp's funding plans in exchange for drastic changes at the century-old firm, including selling overseas TV assembly plants and shutting solar panel businesses in Europe and the United States.

Sharp, which produces air conditioners, microwave ovens and Aquos TVs, expects to lose more than 100 billion yen this business year, sources say, sa vaged by competition from rivals led by South Korea's Samsung Electronics.

The 210 billion yen of lending to be shared between its two key banks will come on top of 150 billion yen of loans already made to Sharp, which must repay as much as 360 billion yen of short-term commercial paper over the coming months.

Mizuho and Bank of Tokyo-Mitsubishi UFJ (BTMU), a core banking unit of Mitsubishi UFJ, want other firms including Resona Holdings to take over half of those 360 billion yen loans, said the sources, who had been briefed on the matter but declined to be named.

Sharp, Mizuho and Mitsubishi all declined to comment.

Sharp's shares closed down 3.9 percent on Thursday, compared with a 0.4 percent rise in Tokyo's benchmark Topix index .

The firm has already mortgaged most of its offices and factories in Japan, including one that makes displays for Apple Inc.'s iPhone and iPad, and it needs to convince banks it can return to profit in the next business year in order to unlock additional financing.

Sharp spent heavily to build the world's most advanced liquid crystal display plant in Sakai, western Japan, which started work in 2009. Losses sustained there undermined the business, and last month ratings agency Standard & Poor's downgraded the company's debt to junk.

COST CUTTING

In the business proposal submitted to lenders, Sharp predicted it can achieve an operating profit of 121 billion yen in the year beginning April 1, compared with an operating loss of 115 billion this term, the sources said. Given the uncertainty of sales picking up, much of the turnaround plan is based on cost cutting.

"We cannot count on revenue growth. We are making the plan under the worst-case scenario," said a senior banker at one of Sharp's main banks last week.

As part of that plan, Sharp would shut solar panel module assembly plants, one in the United States and one in Britain, the sources said. The company would also need to dissolve a partnership with Italy's leading power producer Enel SpA , which last year opened a joint panel production plant.

Sharp, which a decade ago was the world's leading maker of solar panels with around a fifth of the market, also plans to consolidate production at several Japanese sites into one location.

Other cost-cutting measures and asset sales Sharp has proposed include the sale of overseas TV assembly plants. Sharp is already in talks to sell plants in Mexico and China to Taiwanese partner and fellow Apple supplier Hon Hai Precision Industry Co. The two companies jointly operate a TV display plant in western Japan.

Sharp has also offered to sell a third assembly plant in Malaysia. Removing the workers at those sites from its payroll would, when added to 5,000 planned layoffs, shrink the company's workforce by more than 11,000 people, or by about a fifth.

The company is also asking its remaining workers to accept pay cuts as steep as a tenth of their salary.

Talks to sell a 9.9 stake to Hon Hai, a sale which would make the Taiwanese company its biggest shareholder, have, however, stalled after an agreement had been expected in August. Hon Hai has said it wants a management role in return for its cash.

Sharp has denied a local report that it is in talks to make Intel Corp its biggest stockholder instead, but sources have said it is in talks to supply panels for ultra-thin laptops that typically use processors made by Intel.

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