March 6, 2015 / 3:25 AM / in 4 years

Sharp asks turnaround fund for help, on top of aid from banks: source

TOKYO (Reuters) - Loss-making Sharp Corp has asked a domestic corporate turnaround fund to invest up to $250 million in capital - aid which would come on top of plans to tap its two main lenders for a second major bailout, a source said on Friday.

Weak sales of smartphone screens in China, aggravated by an unexpected comeback by rival Japan Display Inc, have derailed Sharp’s recovery efforts. It has warned of its third annual net loss in four years and is now working on a fresh plan to overhaul its business.

Sharp Chief Executive Kozo Takahashi met with officials from its main lenders Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ on Thursday, although he did not request specific amounts or make promises about restructuring, sources familiar with their exchange said.

The embattled electronics manufacturer has also reached out to Japan Industrial Solutions to offer a stake worth up to 30 billion yen, according to one source with knowledge of the situation. The turnaround fund is backed by several financial institutions including Mizuho and Bank of Tokyo-Mitsubishi as well as the state-backed Development Bank of Japan.

The Nikkei earlier reported that the fund would purchase preferred or common shares in Sharp, and that Sharp hopes to receive the investment by March next year.

Such a move would help to prop up Sharp’s capital. For the banks, involvement by the turnaround fund as a shareholder could grant them greater oversight of the turnaround process.

Japan Industrial Solutions’ portfolio includes Unitika Ltd, which makes advanced textiles and plastics, and silicon wafer supplier Sumco Corp. Successful exits include Spa Resort Hawaiians, a resort in Fukushima that saw attendance slide in the wake of the 2011 earthquake.

A spokeswoman for Sharp declined to comment, saying only that nothing had been decided and that it was working on restructuring plans that are due to be announced in May. A spokesman for Japan Industrial Solutions declined to comment.

BANKS FEAR COLLAPSE

Financial sources have said a debt-for-equity swap - writing off their loans in return for ownership of Sharp - would be a logical option for any new rescue by the banks. The Nikkei has put the potential value of such a deal at around 150 billion yen ($1.3 billion).

The sources have said banks want Sharp to embark on bold restructuring in return, similar to recent efforts by Panasonic Corp and Sony Corp which are showing signs of a turnaround.

Company sources say Sharp officials are not willing to consider more radical steps such as merging its display business with Japan Display, which announced on Friday that it would build a new $1.4 billion plant and which a source said would supply screens for Apple.

In ruling out plans for a deal with Japan Display, insiders say they hope the latest downturn is temporary, while analysts say the 100-year-old electronics company is too proud.

The lenders are expected to avoid pursuing too tough a stance for fear of triggering a collapse.

A shopper wearing a mask rides an escalator past advertisements for Sharp Corp's Aquos television at an electronics shop in Tokyo March 3, 2015. REUTERS/Yuya Shino

“Sharp will survive again despite large net losses and its financials being a lot worse than Elpida’s,” said Jefferies analyst Atul Goyal, referring to the failed Japanese chipmaker. “This is because the bank management... are highly unlikely to let Sharp go under.”

The banks agreed in September 2012 to rescue Sharp with loans and credit lines worth 360 billion yen, or $3 billion at today’s exchange rates, in exchange for promises to return to the black by this year. Sharp then exited the European TV market and closed solar-panel businesses in Europe and the United States.

Sharp shares rose 1.7 percent on Friday. They have fallen around 11 percent so far this year.

Additional reporting by Reiji Murai; Editing by Edwina Gibbs and Muralikumar Anantharaman

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