Sharp Faces Cash Squeeze as Foxconn Takeover Talks Drag Onby , , and
Sharp loan, credit lines of 510 billion yen set to expire
Mizuho, MUFJ need to start the renewal process next week
Sharp Corp. is facing a potential cash crunch at the end of this month as talks drag on with Foxconn Technology Group for a rescue deal that would inject billions of dollars in new capital into the struggling Japanese electronics maker.
Sharp has 510 billion yen ($4.5 billion) in credit lines and loans that are set to expire on March 31 and the banks need the company to strike an agreement for a bailout before those loans are renewed, according to people familiar with the matter. The banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group, could finish the renewals by the deadline if Sharp and Foxconn reach final terms next week, said the people, who couldn’t be identified because the matter is private.
“Sharp can do nothing without getting money,” said Mana Nakazora, chief credit analyst in Tokyo at BNP Paribas SA. “The company would die if nobody helps them, though it is an unlikely scenario that the banks don’t help Sharp.”
Sharp’s need for cash is the backdrop to one of the more bizarre takeovers in Japanese corporate history. Foxconn fought for months against the government-backed Innovation Network Corp. of Japan in the takeover battle, and last Thursday Sharp’s board voted in favor of the Taiwanese company’s offer. Hours later Foxconn said it would postpone the deal until it sorted through new information it had just received from Sharp.
Sharp has been losing money for years and its need for financial support set off the takeover battle last year. Sharp’s cash totaled 208.5 billion yen at the end of December, and it is projected to lose more than 100 billion yen in the fiscal year that ends this month, according to estimates compiled by Bloomberg.
Toyodo Uemura, a spokesman for Sharp, declined to comment.
Its two primary banks arranged the syndicated loans that will expire March 31. They include a term loan of 180 billion yen, one line of credit for 180 billion yen and another line of credit for 150 billion yen. Time is running short to renew those loans because the two lenders need time to explain the situation to other banks involved in the financing, said the people.
The banks would suffer financial fallout if they don’t provide financing to Sharp in one form or another. The lenders hold both the company’s debt and equity and stand to lose if Sharp runs out of cash.
INCJ has no plans to approach Sharp about reviving its deal, said one of the people familiar with the matter. However, INCJ may be open to discussions if Sharp gives up on Foxconn and reopens discussions with the government fund, the person said.
"If Sharp cannot close the deal with Foxconn, it wouldn’t be strange for Sharp to talk with INCJ again,” said Nakazora. “Considering the situation of the banks, Sharp has to have a direction by the end of March.”
Sharp’s stock has tumbled since Foxconn said it would delay a definitive agreement. The shares are down 26 percent since Feb. 24 including a 0.8 percent decline to 128 yen in Tokyo trading.