Sharp May Issue Preferred Securities

Sharp Corp. (6753.TO) is considering issuing preferred securities and subordinate bonds to finance a likely decline in the amount received from Taiwanese partner Hon Hai Precision Industry Co.'s (2317.TW) investment in the beleaguered Japanese electronics company, sources familiar with the matter said Saturday, Kyodo News reported.

The Hon Hai group, better known as Foxconn, agreed with Sharp in March to buy a 9.9% stake in the Japanese company by paying Y550 per share. At that price, Sharp was expected to receive around Y66.9 billion. But its share price has since plummeted after Sharp reported huge losses, and the two companies are now in talks to lower the stock sale price.

As of Friday, Sharp shares traded at about Y200 on the Tokyo bourse -- far below the sale price initially agreed with Hon Hai. If Hon Hai invests in Sharp at its recent prices, proceeds from it will fall short of the initially expected amount by about Y40 billion.

To make up for the difference, Sharp is also mulling selling to Hon Hai some overseas factories producing liquid crystal display televisions, the sources said. Subject to the potential sale to the Taiwanese firm are believed to be TV assembly plants in Mexico, Poland, China and Malaysia. Sharp expects the plant sales to also reduce overhead costs, they said.

Sharp is moving to issue preferred securities and subordinate bonds to close business partners instead of floating corporate bonds, on which it would have to pay a relatively high interest rate given the downgrading earlier this year by major ratings agencies of its credit rating due to its deteriorating business performance.

Sharp is planning to make a decision on the securities issuance and asset sale plans by the end of September, the sources said.

Sharp needs to shore up its balance sheet after its interest-bearing debts ballooned to around Y1.25 trillion as of June 30. In September 2013, the company will also have to repay around Y200 billion that it raised through a convertible bond issue.

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