* Shares plunge over 10 pct on plan to raise $1.9 bln
* Funds to raise cash for investments, pay off debt
* If price level holds, close would be lowest since 1980
(Adds comment on convertible bonds)
TOKYO, Nov 15 Shares of Sony Corp
tumbled over 10 percent on Thursday, a day after the consumer
electronics maker said it will raise 150 billion yen ($1.9
billion) through a sale of convertible bonds to help finance a
series of investments.
Sony, beset with falling demand in its core TV business and
the growth of rivals like Apple Inc and Samsung
Electronics Co, has invested in an assortment of
businesses from medical equipment to cloud gaming after CEO
Kazuo Hirai took the helm in April.
On Wednesday, the maker of Vaio laptops and PlayStation game
consoles said it will issue the five-year bonds convertible into
shares to finance an investment in Olympus Corp, the
acquisition of U.S. firm Gaikai Inc, ramping up in CMOS image
sensors used in devices like digital cameras and to repay debt.
Sony shares plunged 10.7 percent to 777 yen. If the stock
price were to finish the day with such losses, the shares would
hit their lowest close since 1980, according to Thomson Reuters
"Worries of dilution are pushing shares down today," said
Katsuhide Takahashi, a credit sector specialist at Citigroup in
If all the convertible bonds were exchanged for Sony shares,
it would lead to a dilution of existing share holdings by as
much as 15.6 percent.
"In a way, the fact that Sony can issue corporate bonds and
access the market is positive, in comparison to its peers that
can't even do that like Sharp. From an equity perspective, there
are worries of dilution but on a credit front this is positive,"
Rival Sharp Corp, has effectively been shunned by
the debt capital markets because of its massive losses and
falling market share, forcing it to turn to its banks for a
bailout in September and consider capital tie-ups.
A Hong Kong-based credit analyst said some investors were
likely selling Sony shares in favour of the convertible bonds,
which protect their investment if the share prices falls but
still offer upside in the event a rally.
Despite a zero coupon, which reflects Japan's near-zero rate
environment, the bonds would be attractive given a low
conversion premium, set at 10 percent above Wednesday's close at
"It would be a safer bet for stockholders to buy the
c onvertible bond a s its downside is better protected relative to
the equity," he said.
Convertible bond arbitrage traders and hedge funds could
also use the bonds to hedge short selling Sony shares.
"The cost of shorting Sony stock would be low and it will be
easy to short, so this trade will be attractive, " he said.
Hirai has pledged to revive the once-stellar brand by
bolstering gaming, digital imaging and mobile devices, and
nurturing new business such as medical devices. He has promised
to reduce its workforce by about 6 percent and make big cost
cuts in its TV unit, which has lost close to $9 billion over the
past 8 years.
After four straight years of net losses, Sony is also
hampered by weakened finances. Its shareholder equity ratio - a
measure of the company's ability to meet its debt obligations
and other expenses - stands at 14.1 percent. A rate of 20
percent is generally considered a healthy minimum.
Last week, Sony's long-term debt rating was lowered one
notch by Moody's Investor Service to the lowest investment grade
level because of shrinking demand for its consumer electronics.
The downgrade means that some of Sony's commercial clients
would be able to demand immediate reimbursement on advances
paid, but the Japanese firm said it would be able to pay any
claims with cash on hand and short-term loans.
The benchmark Nikkei rose 0.9 percent.
($1 = 80.2200 Japanese yen)
(Reporting by Dominic Lau, Mari Saito, James Topham; Additional
reporting by Umesh Desai in HONG KONG; Editing by Richard