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Sharp tries to regain market's trust
Publication Date : 17-08-2012
Sharp Corp. is making efforts to quickly sell its assets, including a flagship factory producing solar cells for a mega-solar power plant, as the company attempts to regain the market's trust by improving its financial condition.
The firm also wants to curb future reductions in the price of its stock.
Additionally, Sharp aims to avoid any further deterioration in its negotiating position with Hon Hai Precision Industry Co., with whom Sharp has agreed to an equity and business alliance.
As of the end of June, Sharp held 360 billion yen (US$4.55 billion) in short-term bonds that are due within a year.
Other outstanding short-term debt increased by more than 100 billion yen from the end of March to 336.5 billion yen.
On August 2, Sharp presented a restructuring plan to improve its fiscal condition, which includes the elimination of 350 billion yen in interest-bearing debts, but market players were not convinced.
Takashi Watanabe of Goldman Sachs Japan Co. said: "The company's business outlook is too optimistic. It needs to get rid of unprofitable business divisions and reexamine fund procurement."
Sharp plans to sell its solar cell plant and buildings it owns in the Tokyo metropolitan area, which would cut up to 100 billion yen in debts, in a bid to reassure market players.
Anxiety has increased in the market on suspicions that Sharp's partnership negotiations with Hon Hai, a tie-up that is essential for Sharp's fundamental business reforms, are in trouble.
The two companies have signed a contract for Hon Hai to buy a 9.9 per cent stake in Sharp at 550 yen per share.
The selling price reflects Sharp's previous stock price, which hovered around 500 yen from the beginning of this year to the time the tie-up was announced on March 27.
Just after the announcement, the stock price briefly topped the 600 yen mark, but nosedived shortly thereafter.
On Wednesday in the Tokyo market, Sharp's stock temporarily hit this year's low at 164 yen per share.
Sharp and Hon Hai are negotiating to lower the price at which Hon Hai will buy Sharp's shares, but industry sources said the two companies are still far from settling on a price.
As the price drops below 550 yen, Sharp will procure even less funds than initially anticipated.
If capital acquired from the planned asset sales is used to cover the shortfall, the likelihood will increase that Sharp will not be able to improve its fiscal condition.
For the last fiscal year ending in March, Sharp's operating profits in all three main business divisions--TVs, solar cells, and cell phones--were in the red.
It remains uncertain if Sharp can return to profitability.
Yasuo Nakane of Deutsche Securities Inc. said, "It's necessary to close plants that are not competitive, and to quickly build a plan for collaboration with Hon Hai."
Financial institutions doing business with Sharp also called for stepped-up efforts. An official of one megabank said, "Additional restructuring measures must be taken."
It is possible Sharp will be forced to take more drastic restructuring actions, such as further cuts in its workforce.