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A slashing of its capital would allow Sharp to
wipe accumulated losses off its books - a necessary step before
the company can resume dividend payments. The prospect of
dividends in the not-too-distant future is seen as key to
getting its banks and other potential shareholders on board with
a rescue deal expected to be worth at least $1.7 billion.
A person familiar with the matter said at the weekend that Sharp
is considering cutting its capital from more than 120 billion
yen ($1 billion) to just 100 million yen. He declined to be
identified as he was not authorized to speak publicly about the
matter.
"The company will be able to start afresh after it wipes away
its cumulative losses and receives new funding, so that part may
be positive going forward," said Takatoshi Itoshima, chief
portfolio manager at Commons Asset Management.
But he noted that the preferred share issuance as well as the
potential for other fund raising in the future had spooked
investors on Monday. Preferred shares frequently have warrants
attached that allow holders to buy stock later at a fixed price.
The Apple Inc <AAPL.O> supplier lost nearly $1 billion in market
value by the end of trade. At one point its shares had tumbled
as much as 31 percent or their daily limit of 80 yen to their
lowest in more than two years.
Sharp declined to provide further details on Monday, saying it
would make a final decision by Thursday, when it announces its
new business plan.
Sources have said the plan will include a $1.7 billion
debt-for-equity swap from its main lenders including a return
for a promise to cut 5,000 jobs and to split off its ailing
smartphone display unit.
It has also asked Japan Industrial Solutions, a corporate
turnaround fund, to invest up to $250 million in capital, they
have said.
Japanese media said the capital reduction is also aimed at
easing its tax burden as it would allow Sharp to be classified
as a small to medium-sized enterprise for tax purposes. While
this would help a little, it will not result in major savings,
said Yutaka Ban, chief credit analyst at SMBC Nikko Securities.
(Additional reporting by Reiji Murai and Hideyuki Sano; Editing
by Kenneth Maxwell and Edwina Gibbs)
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