Sharp planning to tap banks for second bailout in three years

By Reiji Murai

TOKYO (Reuters) - Japan's loss-making Sharp Corp will seek new funds for further restructuring from its two main lenders, a source with direct knowledge of the matter said, with a debt-to-equity swap seen by bankers as the most feasible option.

In what would be its second bailout in three years despite extensive restructuring, the electronics manufacturer is hoping to raise as much as 200 billion yen ($1.7 billion), most of it through a debt-equity exchange, the Nikkei business daily reported.

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 percent.

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, adding that 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 percent 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 and plans to meet with the lenders this week, a source with direct knowledge of the matter told Reuters, declining to be identified because a formal decision has not been made.

Sharp said in a statement it was considering various options but that nothing was decided. Representatives for both banks said Sharp has yet to make a request.

Banking sources said a debt-to-equity swap was the most realistic option, given that Sharp raised over 100 billion yen through new share issues in 2013 and that it has some $8 billion in outstanding debt.

But they added that no decisions had been made to proceed along those lines or on any potential funding amount.

In addition to a $1.3 billion debt-to-equity exchange, Sharp may close up to four plants, exit its solar panel business and seek funds from other electronics firms such as Samsung, which holds a 3 percent stake, domestic media said.

Its net loss for the year ending in March is set to balloon from an earlier forecast of a 30 billion yen 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.

In its profit warning last month, Sharp said it would unveil a new business plan in May after a supply glut had squeezed sales of its smartphone displays in China, the business line it had counted on for growth. Screens account for roughly around four fifths of its operating profit.

In recent years, Sharp has cut thousands of jobs and withdrawn from solar panel production in Europe - moves that followed a 360 billion yen bailout from its banks in 2012.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

Underlining Sharp's fall from grace, rival screen supplier Japan Display last month 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 U.S. company for investment in the project, a person familiar with the situation has said.

There has been much industry speculation that Sharp could be pressured to merge with Japan Display but executives from both companies have denied they are thinking of that possibility.

Shares in Sharp fell as much as 10 percent towards 2-year lows marked last month, but later pared losses to end down 3.5 percent.

($1 = 119.6 yen)

(Additional reporting from Ayai Tomisawa and Taiga Uranaka; Writing by Chang-Ran Kim; Editing by Edwina Gibbs)