TOKYO Cash-strapped Sharp Corp (6753.T) is in talks to sell its key solar panel plant in Japan as part of an asset sale seeking more than $1.2 billion, local media said on Thursday, but it may struggle to woo buyers as high costs force the industry offshore, a source close to the company said.
Desperate for funds to refinance looming debt rollovers, Sharp is seeking more than 100 billion yen ($1.27 billion) for the plant in Sakai, western Japan, and by offloading office buildings in Tokyo, the Yomiuri daily reported.
"It is true that we are considering a number of options, and we will announce these when a decision has been made," Sharp spokeswoman Miyuki Nakayama said.
The company, which makes screens for Apple Inc's (AAPL.O) iPad and iPhone, needs to refinance as much as 360 billion yen of short-term commercial paper and will need a further 200 billion yen in September next year to cover a maturing convertible bond.
Sakai is also the site of its advanced liquid crystal display plant, almost half of which it has sold to Taiwanese partner Hon Hai Precision (2317.TW) in a bid to reduce its exposure to losses at the underutilized facility.
While Sakai offers Hon Hai access to the world's most advanced LCD manufacturing processes, Sharp's solar plant offers little technological edge over offshore sites where wage levels are lower and currency exchange rates are more favorable.
SOLAR TURN OFF
Sharp is mulling the sale of assets including its buildings in Tokyo as well as television assembly plants in Poland, Malaysia, Mexico and Poland, the company source told Reuters, confirming recent media reports.
The source did not confirm whether Sharp was in talks on its Japanese solar plant, but said it would be difficult to find a buyer.
Mirroring the demise of Japan's television industry at the hands of Korean rivals such as Samsung Electronics (005930.KS), the nation's leading solar panel makers, Sharp, Panasonic Corp (6752.T) and Kyocera Corp (6971.T), have been eclipsed by Chinese competitors led by Suntech Power Holdings Co Ltd STP.N, able to match their engineering and undermine their prices.
To cope with the cost handicap of production in Japan, Panasonic is moving its manufacturing abroad, with a new solar panel plant in Malaysia that the company predicts will account for half of its production within three years.
In the three months to June 30, the operating loss at Sharp's solar panel business almost doubled to 6.9 billion yen.
A global oversupply in solar panels also means fabricators are not looking to add new capacity. Amid the industry downturn, Suntech is, like Sharp, struggling to shore up its finances.
On August 2, Sharp widened its overall operating loss forecast for this business year to 100 billion yen.
The Aquos TV maker's shares on Wednesday tumbled as much as 15 percent to their lowest in almost 37 years, as investors worried that Sharp would have to cut its forecast even further, with weaker-than-expected demand for LCD panels for smartphones and tablet PCs adding to its woes in TVs and solar energy.
The average estimate of 13 analysts surveyed by Thomson Reuters since it released its latest forecast is for an annual operating loss of 131 billion yen in the year to next March.
Its sliding share price is also adding pressure on Sharp to concede ground to partner Hon Hai, which in addition to its investment in its LCD plant also agreed in March to take a 10 percent stake in the company for 550 yen a share, more than three times Wednesday's low of 164 yen.
Following the recent stock drop, Hon Hai has reopened talks to win a better deal that analysts estimate may yield Sharp only about a third of the 67 billion yen it was relying on to help bolster its finances.
That means Sharp may have to resort to selling other assets to make up the shortfall and convince lenders including Mizuho Financial Group (8411.T) and Mitsubishi UFJ Financial Group (8306.T) to help keep it solvent.
In addition to its fixed assets of factories and offices, Sharp also owns shares in other companies worth around $500 million, including stakes in car navigation maker Pioneer (6773.T), medical device maker Olympus Corp (7733.T) and flash memory fabricator Toshiba Corp (6502.T).
Sharp's shares were trading 4.1 percent higher in Tokyo at 176 yen on Thursday, although traders attributed the gain largely to short-sellers covering positions to return shares they had borrowed. Short-sellers have targeted Sharp due to its steep operating losses.
($1 = 78.8600 Japanese yen)
(Additional reporting by Chang-Ran Kim, Dominic Lau and James Topham; Editing by Edmund Klamann)