Foxconn Technology Group (富士康科技集團), manufacturer of Apple Inc iPads, plans to renegotiate the price of its investment in Sharp Corp after the Japanese television maker widened its loss forecast and its shares fell the most since 1974.
“We plan to discuss the investment again, but for sure it won’t be at the original ￥550 per share,” Simon Hsing (邢治平), a spokesman for Hon Hai Precision Industry Co (鴻海精密), the Taipei-based flagship firm of Foxconn, said yesterday. “Sharp has agreed to us taking at least the same size of stake, with the possibility of an even larger stake.”
Hon Hai, the world’s largest contract manufacturer of electronics, intends to continue with the investment, Hsing said. Foxconn group companies will no longer recognize the NT$6.4 billion (US$214 million) write-off they made last quarter because of Sharp’s share price decline, Hsing said.
Taiwanese tycoon Terry Gou (郭台銘) and his group agreed in March to invest ￥133 billion (US$1.7 billion) to rescue Sharp, the company that reported a ￥138 billion quarterly loss yesterday. The investment in Japan’s biggest liquid crystal display maker may help Foxconn guarantee access to technology for mobile phone and TV panels.
Sharp shares plunged 28 percent to ￥192 in Tokyo trading yesterday after forecasting an annual loss of ￥250 billion. That is more than its market capitalization of ￥213 billion after the stock’s biggest slump in more than three decades.
The decline could prompt Hon Hai to write off NT$6.1 billion and Foxconn Technology Co (鴻準) NT$3.1 billion this quarter, based on the original investment plan, according to estimates by Vincent Chen (陳豊豐), an analyst at Yuanta Securities Co (元大證券) in Taipei.
Sharp’s convertible bonds due September next year dropped to 87 percent of the notes’ face value.
“It’s disastrous for Sharp,” said Amir Anvarzadeh, manager for Asia equity sales at BGC. “Hon Hai has to increase its stake in Sharp to keep it alive. Or they could turn around and write it off.”
There is no fixed timeline for when a new price will be agreed and the original transaction has not been completed, Hsing said. Foxconn intends to proceed with its technology cooperation and taking an equity stake, he said.
Foxconn, a computer-casing maker, and its affiliates agreed to buy a 9.9 stake in Sharp. Gou invested ￥66 billion for a 37.6 percent stake in Sakai Display Products Corp, formerly known as Sharp Display and using the LCD industry’s most advanced technology.
Last month, the cost to insure Sharp’s debt against default in the short term outstripped that for the longer term for the first time, a sign that investors have concerns over the company’s ability to repay debt.
The two-year contracts on Japan’s largest maker of LCDs jumped 453.7 basis points since June to 941.9 basis points, while the five-year cost rose 295 to 897.7, according to CMA prices as of Thursday.
Sharp had a net loss of ￥138.4 billion in the three months ended June 30, widening from ￥49.3 billion a year earlier, the company said. The average of four analysts’ estimates compiled by Bloomberg was a loss of ￥76 billion.
The extra yield investors demand to own convertible bonds instead of government debt soared 489.4 basis points to a record 1,243.6 basis points, prices from the Tokyo Stock Exchange yesterday morning showed.