Sony’s Debt Risk Falls as Convertible Bond Wards off Junk Threat
Sony Corp. (6758)’s credit risk declined to the lowest in almost two months on speculation the Japanese electronics maker’s sale of convertible bonds will help it avoid more debt rating cuts.
The cost to insure the bonds of Sony for five years against non-payment dropped 32.6 basis points to 389 basis points as of 14:48 p.m. in Tokyo, according to intra-day prices from data provider CMA. That’s set for the lowest closing level since Sept. 19, CMA prices in New York show.
Sony, reeling from four straight annual losses, has been downgraded by six levels to Baa3, the lowest investment grade, by Moody’s Investors Service as the maker of Walkman music players struggles without a product to challenge Apple Inc. and Samsung Electronics Co. The company sold 150 billion yen ($1.87 billion) of debt as Chief Executive Officer Kazuo Hirai reduces 10,000 jobs and sells assets to focus on mobile devices, games and digital imaging to revive the company.
“This should be better than selling straight bonds that are 100 percent debt,” said Mana Nakazora, Tokyo-based chief credit analyst at BNP Paribas SA. “If they had chosen straight bonds, the cost could have been much higher, and that would have been negative for ratings.”
The company offered the convertible bonds instead of straight debt to minimize interest payments with a zero coupon, Mami Imada, a spokeswoman for Tokyo-based Sony said today.
Sony sold the securities due November 2017 to fund acquisitions and the expansion of imaging-sensor facilities, the company said in a statement yesterday. The conversion price was set at 957 yen, or 10 percent above the closing price of its stock yesterday in Tokyo. The shares dropped as much as 11 percent to 772 yen today, and closed at 793 yen on the Tokyo Stock Exchange.
The company’s first sale of such debt since 2003 “enables us to raise a significant amount of long-term money at once,” Imada said. She declined to comment on the credit-default swaps, citing Sony’s policy not to speak on market movements.
The extra yield investors demand to own Sony’s 45 billion yen of 0.664 percent bonds due March 2017 rather than government debt fell half a basis point yesterday to 154, according to JS Price data. The notes were priced in March at a spread of 36 basis points, according to data compiled by Bloomberg. Sony’s rating has been lowered from Aa3 in 2003 by Moody’s.
Sharp Corp. (6753) and Panasonic Corp. (6752) also expect to lose a combined 1.2 trillion yen in the fiscal year ending March, as competition from abroad and the yen near a postwar high erodes the value of their overseas earnings.
“Selling 150 billion yen of convertible bonds reminds us of what’s going on with Sharp, which is facing repayment of 200 billion yen of convertibles,” BNP Paribas’ Nakazora said. Sharp’s equity-linked debt comes due in September 2013, according to data compiled by Bloomberg.
“In this regard, Sony paid attention to the deterioration of their balance sheet,” BNP Paribas’ Nakazora said. “To see whether this financing is good or not, we need to see the impact on their revenues.”
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