Sharp Corp.’s bond rally is driven by “groundless enthusiasm” because the company’s ability to survive remains in question, according to Hidetoshi Ohashi, who runs hedge fund Japan Credit Advisory Co.
“The company is barely scraping by” and it’s still unclear if the television maker can repay 200 billion yen ($2.1 billion) of convertible bonds maturing in September, Ohashi said at a seminar held by SMBC Friend Securities Co. on Feb. 19. “This isn’t the time to lose caution.”
Investors, emboldened by Japanese Prime Minister Shinzo Abe’s plans for 10.3 trillion yen of fiscal stimulus, have flocked to the debt of junk-rated manufacturers Tokyo Electric Power Co. and Nippon Sheet Glass Co. in search of higher returns. Sharp’s 100 billion yen of bonds due 2014 have more than doubled, rising to 78.5 yen yesterday per 100 yen face value, from a record low of 35 yen on Oct. 18, according to JS Price data.
Abe, whose Liberal Democratic Party swept to power in December, has spurred the Topix stock index to the longest rally since 1973 and pushed the yen to its lowest since May 2010 by calling on the central bank to lift limits on spending and end deflation. Tokyo Electric’s notes maturing in 2017 and Nippon Sheet Glass’s 24 billion yen of debt due 2015 are trading at record highs, JS Price data show.
Sharp plans to replenish funds necessary for the repayment by selling assets in addition to boosting cash flow, Tetsuo Onishi, a senior executive managing officer at the company, said at a Feb. 1 briefing. The Osaka-based manufacturer forecast at the time operating profit will reach 13.8 billion yen in the six months to March 31, rebounding from a 168.9 billion loss in the first half.
“The markets seem to believe the LDP won’t let the company go bankrupt,” Ohashi said. “It is just a baseless gamble, not a rational judgment.”
Ohashi, a former Tokyo-based credit strategist for Morgan Stanley, started a hedge fund last year with a focus on Japanese corporate bonds and credit-default swaps.
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