Electronics manufacturer Sharp will buy back and retire all of the roughly 100 billion yen ($905 million) in preferred shares held by its two top lenders this fiscal year as its earnings recover under parent Foxconn’s restructuring plan.
The planned buybacks from Mizuho Bank and MUFG Bank follow a repurchase of about 85 billion yen worth of preferred shares in January.
The preferred shares carry high dividends, and buying them back would reduce the company’s financial burden. Sharp booked roughly 15 billion yen in three years of dividend payouts to the two banks in fiscal 2017.
The banks will also gain the right to convert those shares into regular stock after July. Doing so would increase the number of outstanding shares by up to 20%, a concern for ordinary shareholders, who will see their holdings become diluted.
Sharp recorded massive losses as its mainstay liquid crystal display business slumped. Hungry for cash, the company replenished its capital through a debt-for-equity swap in which Mizuho Bank and MUFG Bank purchased preferred shares in 2015.
Foxconn, formally traded as Hon Hai Precision Industry, then bought the struggling Japanese company in August 2016. Disposal of those preferred shares has been a priority as Sharp rebuilt its operations under the Taiwanese electronics manufacturer.
Sharp said in June that it would repurchase the preferred shares by raising 200 billion yen through a public stock offering. The public offering was called off, however, after its stock price dropped. The company decided to proceed with gradual buybacks using its own capital instead.
Sharp expects net profit to climb 28% to 90 billion yen for the year ended March. Eliminating baggage from previous business missteps will mark a milestone in the company’s restructuring under Foxconn.
Although the repurchases will lower its capital base, Sharp’s credit rating will improve once its finances are sound. This will allow the company to secure money via various fundraising options, including bond issues under more favorable terms.―Nikkei Asian Review