Pressure grows on Olympus for capital deal as liquidity gauge drops

Reuters News
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Posted: Aug 09, 2012 2:44 AM
Pressure grows on Olympus for capital deal as liquidity gauge drops

By Mari Saito

TOKYO (Reuters) - Pressure mounted on Japan's Olympus Corp to clinch a capital deal as its loss-making camera unit further slashed earnings and undermined the ability of the scandal-hit company to meet financial obligations.

Shareholders' equity fell to 2.2 percent of total assets in June from 4.6 percent in March. The decline in the ratio, a key barometer of a company's liquidity, takes Olympus further away from the 20 percent level widely regarded by analysts as indicative of financial stability.

The 93-year-old manufacturer of cameras and medical equipment has held talks with several Japanese companies including FujiFilm Holdings and Sony Corp on a capital tie-up as it tries to mend its severely depleted balance sheet hit by a massive accounting scandal last year.

"They must raise equity soon, but we don't know where the story will end," said Nanako Imazu, an analyst at CLSA Asia Pacific Markets in Tokyo. "Why are they so relaxed?"

Olympus Senior Executive Managing Officer Yasuo Takeuchi acknowledged that the company needs a capital injection before its business year ends in March 2013. He denied that the company was dawdling in its talks with potential partners.

"We have received several different types of proposals, and I cannot pinpoint exactly why the negotiations are taking time. We're not doing this in a leisurely, relaxed manner," he told reporters after the company posted a 60 percent slump in operating profit for April-to-June.

Operating profit dropped to 2.12 billion yen ($27.05 million) in the quarter after an operating loss at Olympus' camera division and a stronger yen offset a profit gain at the company's medical equipment division.

The stronger yen reduced overall quarterly operating profit by 2.6 billion yen, the company said. Olympus kept its full-year operating profit forecast at 50 billion yen.

The company posted a net loss of 49 billion yen in the year ended March 31, after admitting in November to a decade-long scheme of falsifying financial statements and hiding investment losses.

Olympus has promised investors it will boost its shareholders' equity ratio to 30 percent in five years. To raise it to 10 percent, the company said it needs to find some 50 billion yen in fresh capital.

TIE-UP TALKS

Sources familiar with the matter have said Olympus is in final talks with Sony to accept a cash injection in return for a stake, while medical device maker Terumo Corp said last month it is seeking to form a joint holding company with Olympus as part of a 50 billion-yen capital infusion plan.

In an unusual turn of events, Terumo slapped its potential partner with a lawsuit last week for failing to disclose its accounting fraud before signing a business and capital tie-up with the medical equipment maker seven years ago.

CLSA's Imazu said pressure on Olympus to secure a capital deal would only intensify, given that the yen had continued to strengthen against the euro in the current quarter.

"By the end of the first half, probably equity will be further reduced... they must do something," she said.

In a regulatory filing on Thursday, Olympus said it expects creditors to continue providing loans even though misreported financial statements in the past meant it had violated covenants on some loans.

Takeuchi also shed no fresh light on the possibility that Olympus had broken a U.S. law that bans corporations from offering bribes to win business in overseas markets.

Olympus said earlier this month that it had told the U.S. Department of Justice in October that travel, meal and entertainment expenses paid by its U.S. subsidiary to doctors in a training program in Brazil may have violated the Foreign Corrupt Practices Act.

On Thursday, Takeuchi said the company was working with the U.S. justice department and did not know when the investigation would be completed.

Shares in Olympus settled 2.2 percent lower before the earnings announcement. Tokyo's benchmark Nikkei average rose 1.1 percent. ($1 = 78.3600 Japanese yen)

(Additional reporting by Linda Sieg and James Topham; Editing by Ryan Woo)