By Tim Kelly
TOKYO, Dec 10 (Reuters) – Panasonic Corp, Japan’s
struggling maker of Viera brand TVs, owns more than 10 million
square metres of office and factory space, dormitories for its
workers and sports facilities for its rugby, baseball and
women’s athletics teams.
As it battles for Christmas shoppers’ wallets in the
year-end holiday season, the sprawling electronics conglomerate
is also seeking buyers for some of those properties to trim its
fixed costs and improve cashflow at a time of intense
competition, particularly from South Korean rivals such as
Samsung Electronics Co.
Japan’s other troubled TV makers, Sony Corp and
Sharp Corp, are also selling buildings and businesses
in a giant ‘garage sale’ that could raise a combined $3 billion.
Panasonic plans to raise $1.34 billion from offloading
property and shares in other Japanese companies by end-March,
the group’s chief financial officer Hideaki Kawai told Reuters.
“We have a lot of land and buildings in Japan and overseas,”
he said in an interview at the company’s head office in Osaka,
in western Japan. He declined to list which properties would go
on the block, but said most are in Japan. He added that
Panasonic would raise about a quarter of the sell-off funds by
getting rid of shares it owns in other companies – a common
practice of cross-shareholdings in Japan.
The proceeds would help bolster free cashflow to 200 billion
yen ($2.43 billion) for the business year to March, Kawai said,
and allow Panasonic to reduce its debt and maintain its crucial
research and development effort as it revamps its business
portfolio.
It will sell more assets in the year starting in April if
cashflow dips below 200 billion yen, Kawai added. Panasonic
President Kazuhiro Tsuga has promised to shut or sell businesses
operating at below a 5 percent margin. Those sales could start
as soon as April.
Panasonic’s fixed assets of $21 billion are around 30
percent more than those of Apple Inc, and are almost
double the company’s market value. The company, founded almost a
century ago as a small electrical extension socket maker, trades
at around half its book value – which includes intangible assets
such as patents. Sony trades at 39 percent of book, Sharp at 30
percent.
The fixed assets – buildings, land and machinery – of the
three companies that were not so long ago a byword for
innovation in household gadgetry total around $42 billion, while
their combined market value is $24 billion.
CASHFLOW IS KING
The three firms have been downgraded by credit ratings
agencies, making it tougher to raise funding on capital markets,
and making asset sales more urgent.
Selling assets “is good in terms of their credit ratings
because, for all three, it will lower fixed costs and they can
reduce their capex requirements. Eventually, this could improve
operating margins and, more importantly, cashflow,” said Alvin
Lim, an analyst at Fitch Ratings in Seoul.
Fitch, which makes its ratings without input from company
management, last month cut Panasonic to BB and Sony to BB minus,
the first time one of the major agencies has relegated either
company to junk status. Sharp is ranked B minus, adding to its
borrowing costs.
“We rate Panasonic as investment grade, and it should have
various funding options. Selling assets it can do without, to
avoid raising additional borrowing, can be an option,” said
Osamu Kobayashi, an analyst at Standard & Poor’s.
While Korean rivals have also benefited from a weaker local
currency, data from the Japan Electronics and Information
Technology Industries Association shows that Japanese production
of consumer electronic equipment fell to just above $15 billion
last year from more than $19 billion a decade ago. Output in
September was just $980 million, half last year’s level.
“The gap with Korean makers seems to be widening. It’s going
to be very difficult for them to regain their top-tier
position,” said Fitch’s Lim.
As the three Japanese firms, all under new leadership, have
sketched out restructuring plans, the cost of insuring their
debt against defaulting in 5 years has dropped from spikes just
a month ago. Credit default swaps for Sharp and
Sony are down to levels last seen 3 months ago,
while Panasonic’s have dropped 40 percent in the past month.
THREE PATHS
While Panasonic is looking to revamp its business around
batteries, auto parts and household appliances, Sony is doubling
down on smartphones, gaming and cameras. Sharp, meanwhile, is
focusing on display screens and is forging alliances with the
likes of Taiwan’s Hon Hai Precision Industry and U.S.
chipmaker Qualcomm Inc.
Sony may also take the real estate sale route to raise
much-needed cash, with a possible sale of its 37-storey New York
headquarters, dubbed by New Yorkers as the ‘Chippendale’ because
of its design that is reminiscent of the period English
furniture. Selling that jewel could raise $1 billion, media have
reported.
The maker of Vaio laptops, PlayStation gaming consoles and
Bravia TVs may also sell its battery business, which makes
lithium ion power packs for tablets, PCs and mobile phones. The
company has been approached by investment banks offering to sell
the unit, which employs 2,700 people and has three factories in
Japan and two overseas assembly plants. Sony values the
business’s fixed assets at $636 million.
Potential buyers could include BYD Co Ltd
, a Chinese carmaker backed by billionaire investor
Warren Buffett, and Taiwan’s Hon Hai – which part owns Sharp’s
advanced LCD panel plant in Sakai, western Japan, and is in
talks to buy TV assembly plants in China, Malaysia and Mexico
for $667 million, Japan’s Sankei newspaper has reported.
Sharp has mortgaged nearly all its properties to secure a
$4.6 billion bailout from Japanese banks and so has few assets
to offer in a grand garage sale.
Instead, it’s selling part of the garage.
Qualcomm has agreed to buy a 5 percent stake in Sharp,
making it the largest shareholder. Hon Hai, which earlier this
year agreed to invest in Sharp – before its stock slumped in the
wake of record losses – has said it remains interested in taking
a stake.
“Whatever they can get to get through this fiscal period by
scaling down their operation is a critical step for them to
remain afloat,” said Fitch’s Lim.
