Sharp Rally Adds $433 Million to Market Value as Shorts Cut

  • Shares close unchanged after rally that started Nov. 19
  • Key lender of stock to short sellers stops new applications

Sharp Corp. has regained $433 million of market value in the past week as a provider of stock to short-sellers said it wouldn’t take new applications and amid reports the debt-strapped company’s main banks may forgive loans.

The stock, which closed unchanged Wednesday, has gained 25 percent since touching a low for the year on Nov. 18. That’s the best four-day performance since May 2013, bringing the company’s market value to about $2.1 billion. Japan Securities Finance Co. changed its rules on lending Sharp shares after short interest on the stock reached a six-month high.

Debt-strapped Sharp has endured more than 1.2 trillion yen ($9.8 billion) in losses during the past four financial years as rival liquid-crystal display makers undercut its business globally. Institutional investors have been abandoning the stock, with 13 of the 14 analysts tracked by Bloomberg recommending selling the shares. One rated them hold.

“The news of possible loan forgiveness by the megabanks and JSF’s restrictions on shorts are both moving the shares,” said Takashi Oba, a senior strategist at Okasan Securities Co. “This company won’t change overnight, or in a week. These tidbits about the shares and debt have no impact on Sharp’s fundamentals and the company’s ability to generate profit.”

People who engage in short selling expect to make money by repurchasing the stock at a lower price in the future and returning it to lenders such as JSF.

Debt Forgiveness

Sharp is dependent on its main lenders for survival. Its debt has mounted to more than five times the value of its equity, the most for any non-financial company in the Nikkei 225 Stock Average. The Kyodo news agency reported Friday that Sharp’s primary lenders, Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc., may forgive loans to secure an investment from Innovation Network Corporation of Japan.

Separate reports said Sharp may shut its remaining overseas TV factories, and the company is boosting production of large 4K TVs in a bid to return the business to profit next fiscal year.

The maker of displays for mobile phones, tablets and televisions is considering selling a stake in the LCD operation to government-backed INCJ or to Foxconn Technology Group unit Hon Hai Precision Industry Co., people with knowledge of discussions within the companies have said.

Sharp said Oct. 30 its sales dropped 3.6 percent in the fiscal first half to 1.279 trillion yen as revenue from LCD TVs, tablets and solar batteries all decreased. President Kozo Takahashi has announced plans to sell the company’s headquarters, withdraw from the TV business in North America and cut back in solar panel manufacturing.

Foxconn, assembler of Apple Inc.’s iPhone, has signed a letter of intent to buy a stake in Sharp’s LCD business in a deal that would give the Taiwan-based company management control, people familiar with the plan said in September.

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