Sharp told by lenders to find LCD partner within months -sources

[October 27, 2015]  By Makiko Yamazaki and Taiga Uranaka

TOKYO (Reuters) - Sharp Corp's main banks are telling it to find a buyer for all or part of its ailing LCD business within months, pushing it to get more capital elsewhere as they have already footed two huge bailouts, sources familiar with the matter said.

Despite a $1.7 billion rescue in May, its second major package in three years, persistent losses have meant Sharp can't make the investments it needs to keep its screen business competitive, they said.

The embattled Japanese firm warned this week it would not book a first-half operating profit as planned due to sliding prices for small and medium-sized screens, instead estimating an loss of 26 billion yen ($215 million).

"We want Sharp to make up its mind (on a partner) by the end of year, or by the end of the fiscal year in March at the latest," an executive at one of its main banks told Reuters.

"LCDs are such a volatile business and need constant large-scale investment," he said. "I don't think Sharp can handle the business on its own."

Taiwan's Hon Hai Precision Industry Co has been interested in buying all or part of the LCD unit, while a state-backed fund is also considering a direct investment in Sharp or merging the company's LCD unit with rival Japan Display Inc, separate sources have said.

Financial sources say, however, that no deal is imminent. They declined to be identified as they were not authorized to speak on the matter.

Bank of Tokyo-Mitsubishi UFJ, the core unit of Mitsubishi UFJ Financial Group Inc and Mizuho Bank, the core unit of Mizuho Financial Group Inc are Sharp's main creditors. Representatives for the lenders were not immediately available to comment. Sharp declined to comment on prospects of finding a buyer or partner for its LCD unit.

EXTRA BURDENS

Sharp's main banks have increased pressure on the company as they are worried that without evidence of more drastic restructuring steps, smaller lenders will not refinance loans due to be repaid by end-March, a separate financial source said.

Main banks may then have to shoulder more of the refinancing burden, the source added. Analysts say key banks are unlikely to let Sharp fail as they have already extended huge loans.

Sharp has secured funds under a 510 billion yen ($4.2 billion) commitment line that must be repaid by end-March although the amount borrowed has not been disclosed.

Prospects for Sharp, which was once Apple's favored supplier, to clinch a deal remain unclear.

Hon Hai, which goes by the trade name Foxconn, is seen as the strongest suitor. It already owns a 37.6 percent stake in Sharp's most advanced LCD plant although talks about a deal in 2012 fell through when CEO Terry Gou wanted to renegotiate terms after Sharp's share price slid.

"Sharp's expertise in high-end LCD panels is what Hon Hai is after," said Hiroshi Hayase, senior director at research firm IHS Technology. "Experience of more than 30 years in LCDs is something you don't easily catch up with."

But a deal with Hon Hai could face opposition from within Japan's government which is wary of a threat to Japan Display.

A move by state-backed fund Innovation Network Corp of Japan to invest in Sharp or merge its LCD unit with Japan Display could face anti-trust concerns, particularly in China, sources said. They note the two firms account for nearly a third of global market share in small and medium-sized panels in value terms.

Sharp is due to report detailed first-half earnings on Friday.

($1 = 120.5500 yen)

(Reporting by Makiko Yamazaki and Taiga Uranaka; Additional reporting by Reiji Murai; Writing by Ritsuko Ando; Editing by Edwina Gibbs)
 

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