Investors who bought into Sony Corp. (6758)’s convertible bond issue last year may reap profits of as much as $1.7 billion, after the shares surged to more than double the price at which the debt can be redeemed for equity.
Sony raised 150 billion yen ($1.5 billion) in November to fund expansion, selling zero-coupon bonds which can be converted into 157 million shares at 957 yen apiece, the Tokyo-based company said in an e-mailed statement. Those shares would be worth 327 billion yen at yesterday’s closing price of 2,082 yen.
The maker of Bravia TVs, which got a proposal from billionaire Daniel Loeb to spin off its entertainment assets, made its first convertible-bond sale in a decade amid a stock price plunge on mounting losses from TVs last year. The shares have more than doubled this year as Chief Executive Officer Kazuo Hirai cut jobs, sold assets and benefited from a weaker yen. While investors can now convert the debt, none have done so yet, said Yuki Shima, a spokeswoman for Tokyo-based Sony.
“Exercising it at this point seems very attractive,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “I’m surprised no one’s done it yet, since the share price has doubled.”
The zero-coupon notes may be exchanged for Sony’s shares until Nov. 16, 2017, according to data compiled by Bloomberg. The company has an option to buy the notes back at par should its shares trade at 30 percent above the conversion price, or at least 1,245 yen, over 20 consecutive business days after Nov. 30, 2015, the data show.
If the bonds were redeemed fully, the shares issued would be equivalent to about 13 percent of Sony’s stock.
The price of the bonds, which was initially offered at 102.5 yen for a 100-yen face value, has also surged to 218.65 yen yesterday, according to Nomura Holdings Inc. prices.
Sony’s shares jumped 10 percent in Tokyo on May 15 to close at the highest level since July 2011 after Third Point LLC, the hedge fund headed by Loeb, took a $1.1 billion stake and urged the company to sell as much as 20 percent of its entertainment business in an initial public offering. Sony rose 0.5 percent yesterday.
Even after recent gains, Sony’s market capitalization of about $21 billion compares with a valuation of more than $120 billion in 2000. The company has the U.S. dollar equivalent of $8.6 billion of bonds and loans outstanding due by the end of 2022, according to data compiled by Bloomberg.
Sony sold the convertible bonds to fund acquisitions and the expansion of imaging-sensor facilities, the company said in a Nov. 14 statement. It offered the convertible bonds instead of straight debt to minimize interest payments with a zero coupon, the company said at the time.
The sale was announced less than a week after Sony had its credit rating cut to the lowest investment grade by Moody’s Investors Service, which cited falling demand for its TVs and cameras.
Third Point’s Loeb said in a May 14 letter to Hirai that the company should sell as much as 20 percent of Sony Entertainment in an initial public offering, giving current Sony shareholders priority in owning the shares and reducing leverage for the electronics business.
CLSA Asia-Pacific Markets said Sony would be worth 28 percent more in a separation.
“The entertainment businesses are important contributors to Sony’s growth and are not for sale,” Sony said in an e-mailed statement May 14.
Founded in 1946, Sony was emblematic of Japan’s post-World War II rise, inventing the Trinitron cathode-ray tube TV in the 1960s and the Walkman portable music player a decade later. Its market value has plunged as consumers shifted to flat-panel TVs, smartphones and mobile devices made by Samsung Electronics Co. (005930) of South Korea and Cupertino, California-based Apple Inc.