Hon Hai Group (鴻海集團) will book a mark-to-market loss of NT$6.4 billion (US$213.6 million) on its investment in Sharp Corp to reflect the recent plunge in the Japanese firm’s share price.
The Taipei-based group made public its paper loss in separate filings with the Taiwan Stock Exchange on Saturday amid market speculation that Hon Hai could seek to alter the terms of its collaboration with Sharp to pare possible investment losses.
On March 27, Hon Hai Precision Industry Co (鴻海精密) announced that the company, along with its local subsidiary Foxconn Technology Co (鴻準), overseas investment arms Q-Run Holdings Ltd and Foxconn (Far East) Ltd, would buy 121.65 million new shares, or 9.87 percent, of Sharp at ￥550 per share, for a total of ￥66.91 billion.
However, the Sharp’s share price has dropped 13.27 percent since then, ending at ￥425 in Tokyo trading on Friday from ￥490 on March 27, raising concerns that Hon Hai might seek to renegotiate the terms of the deal and how much the loss would erode the company’s second-quarter profit.
Shares in Hon Hai, which assembles iPhones and iPads for Apple Inc, fell 19.81 percent over the same period, closing at NT$86.6 on Friday in Taipei trading.
To ensure investors keep their faith in the tie-up between Hon Hai and Sharp, company chairman Terry Gou (郭台銘) said at the company’s annual general meeting on Monday last week that the company is focused more on the long-term value of the deal and less on the short-term decline in share price.
Gou also said that the company would seek to boost its stake in the Japanese firm to secure advanced flat-panel technology and hoped the collaboration would help Hon Hai and its flat-panel subsidiary, Chimei Innolux Corp (奇美電子), to compete with Samsung Electronics Co. He did not elaborate on how many more shares Hon Hai planned to buy in Sharp.
Gou holds a 2.91 percent stake in Chimei Innolux, the nation’s top LCD panel maker, while Hon Hai Group owns about 8.15 percent.
The Saturday disclosure of the group’s investment loss based on mark-to-market accounting — which allows outsiders to better track a company’s financial performance and net worth — might indicate that Hon Hai wants to be more transparent about the deal with Sharp in order to win the trust of investors and analysts.
Based on the companies’ stock exchange filings, Hon Hai Precision will book a NT$2.63 billion loss on its ￥27.5 billion (US$341 million) investment in Sharp, while its Foxconn (Far East) Ltd unit will book a NT$1.64 billion loss on a ￥17.13 billion investment.
Foxconn Technology, a maker of metal casings for Apple, will book a NT$422.6 million loss on its ￥4.42 billion investment and its Q-Run Holdings unit will book a NT$1.71 billion loss on its ￥17.86 billion investment.
Although the companies did not say when the paper losses would be booked, they said in the filings that they “expect to settle the share purchases in July,” adding that they “plan to hold these shares as a long-term investment.”
additional reporting by Lisa Wang