Japanese banks stake $6 billion on electronics bailouts

Reuters News
Posted: Sep 28, 2012 12:22 AM
Japanese banks stake $6 billion on electronics bailouts

TOKYO (Reuters) - Japanese banks have staked more than $6 billion on two of the country's ailing electronics companies, Sharp Corp and Renesas Electronics Corp, loans that resolve the firms' immediate cash crises but fail to end doubts about their future.

Chipmaker Renesas last month forecast its worst-ever annual loss as a result of sinking prices and a strong yen, and sources say 100-year-old Sharp expects to lose over 100 billion yen ($1.29 billion) this business year as it struggles against rivals including South Korea's Samsung Electronics Co Ltd.

Still, the banks see continued lending as the best way to get back their existing loans. "It doesn't make economic sense to put a company into bankruptcy and have control determined by a court rather than the banks," said Brian Waterhouse, senior analyst at brokerage CLSA in Tokyo.

"They stand a much better chance of getting their money back if the company is alive than if it is dead."

Many other financial institutions are cautious because of continued worries about Sharp's future.

The new lending will keep Sharp - which needs to repay as much as 360 billion yen of short term commercial loans over the coming months - in business, and could in turn give the banks a greater chance of recouping more than 300 billion yen in loans already extended to the embattled company.

Still, an uncertain future for the display maker means the lenders risk throwing good money after bad, some analysts say.

"For the banks it's not good news," said Naoko Nemoto, managing director at ratings agency Standard & Poor's in Tokyo. "There are many uncertain things like (Sharp's) profit projections."


For Sharp, pressure from the banks to adopt a low-risk strategy may scupper plans to make Taiwanese partner Hon Hai Precision Industry its largest shareholder.

Talks to seal the deal have been stalled since August and lenders may want Sharp to abandon the negotiation that would give fellow Apple Inc supplier Hon Hai, and its chairman Terry Gou, leverage to push the Japanese company into a riskier growth strategy.

That strategy would involve expanding its liquid crystal display business, an analyst at a brokerage in Tokyo said, declining to be identified because of the sensitivity of issue.

"For the next five years, Sharp belongs to the banks," the analyst said. That may mean more focus on stable, cash-generating businesses such as household appliances, he said.

To secure bank backing, Sharp, which makes air conditioners, microwave ovens and Aquos TVs, has had to agree to drastic cost cuts such as selling overseas TV assembly plants, possibly to Hon Hai, and shutting solar panel operations abroad.

Sharp confirmed on Friday it had won a 360 billion yen ($4.6 billion) bailout led by Mizuho Financial Group and Mitsubishi UFJ Financial Group.

Renesas said it had secured 161 billion yen in fresh syndicated loans from four Japanese banks including Mizuho. The cash-strapped firm said it had also received 47.5 billion yen in other loans from the banks.

Separately, Renesas secured 49.5 billion yen in funding from major shareholders Mitsubishi Electric Corp, Hitachi Ltd and NEC Corp. Mizuho Corporate Bank is a unit of Mizuho Financial Group.

Sources said this month that a Japanese government fund was considering a bailout of the Renesas chipmaker as part of a consortium including Toyota Motor Corp likely to join, a banking source told Reuters on condition of anonymity.

($1 = 77.6950 Japanese yen)

(Reporting by Tim Kelly, Taiga Uranaka, Mayumi Negishi, Junko Fujita and Linda Sieg; Editing by Daniel Magnowski)