Sharp planning to tap banks for aid, second bailout in 3 years

Fierce competition from Apple, Samsung and cheaper Chinese makers has hammered the firm

Embattled Japanese electronics maker Sharp Corp is preparing to seek aid from its two main lenders, a source with direct knowledge of the matter said, in what would be its second bailout in three years despite extensive restructuring.

Shares in the company, which last month warned of its third annual net loss in four years and said it was working on a fresh plan to overhaul its businesses, tumbled as much as 10%.

Fierce competition from Apple Inc, Samsung Electronics Co as well as cheaper Chinese makers has hammered Japan's once mighty consumer electronics firms. But while rivals like Panasonic Corp and Sony Corp have made progress in turning around some operations, Sharp, once Apple's most favoured screen supplier, has not.

"It looks difficult for the company to survive on its own (even after an aid package)," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management, saying the company had made a huge mistake in banking its growth plans on small to mid-sized flat panels whose prices fall 20 to 30% a year.

"In the end, Sharp may have to obtain support from some company," he said.

Sharp is looking to request aid from Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ in a bid to shore up finances needed to restructure further, the source told Reuters, declining to be identified because a formal decision has not been made.

The Nikkei business daily reported on Tuesday that Sharp's aid request included a 150 billion yen ($1.3 billion) debt-for-equity swap and it may seek investments from domestic and foreign electronics giants such as Samsung, which holds a 3% stake. Sharp aims to raise nearly 200 billion yen through the share placement and the deal with the banks, the paper said.

Net losses for the financial year ending in March had ballooned from an earlier forecast of a 30 billion yen net loss, with the Nikkei reporting a loss of more than 100 billion yen while Kyodo news agency said it was likely to be near 200 billion yen.

Sharp said in a statement it was considering various options but that nothing was decided.

A banking source told Reuters that lenders have been aware for quite some time that a debt-for-equity swap is one of the few viable options for the company.

A Mizuho spokeswoman said the bank had not received a request for financial help from Sharp. A spokesman for Bank of Tokyo-Mitsubishi UFJ also said it had not received a request, adding that lender is keen to see what its new business plans will look like.

In its profit warning last month, Sharp said that a supply glut had squeezed sales of its smartphone displays in China, the business line it had counted on for growth.

Sharp President Kozo Takahashi is due to announce in May a new mid-term business plan that is expected to outline plans to overhaul its TV, displays, solar energy, electronic components and white goods businesses.

In recent years, Sharp has cut thousands of jobs and exited unprofitable operations such as solar panel production in Europe - moves that followed a 360 billion yen bailout from its banks in 2012. It has also issued new shares, and taken in equity investments from Samsung and Qualcomm Inc.

Underlining Sharp's fall from grace, rival screen supplier Japan Display booked a stronger-than-expected rise in quarterly profit on higher demand from Apple and Chinese smartphone makers.

Japan Display is also looking at building a plant to supply smartphone screens for Apple and is negotiating with the US company for investment in the project, a person familiar with the situation has said.

Shares in Sharp fell as much as 10% to 229 yen, heading back towards 2-year lows marked last month. They were last trading down 7%.

($1 = 120.14 yen)