Bloomberg News

Olympus Has Enough Cash to Keep Going, President Says

November 30, 2011

(Corrects debt coming due in 14th paragraph of story first published Nov. 17.)

Nov. 17 (Bloomberg) -- Olympus Corp. has enough cash on hand to keep the 92-year-old company in business amid a probe of schemes to hide investment losses, President Shuichi Takayama told employees yesterday.

“Continue focusing on your job and responsibilities. Our treasury section will take care of financing issues,” Takayama wrote in a posting on the company’s internal website, a copy of which was given to Bloomberg News. In a posting today, Takayama said hospitals are asking for details of the scandal before they commit to orders, with one hospital canceling its purchase.

The world’s biggest endoscope maker, under investigation over accounting irregularities by Japanese, U.K. and U.S. authorities, met officials from financial institutions in Tokyo yesterday to ask for their support. Olympus gained “understanding” from several dozens of lenders at the meeting, Takayama wrote.

Japan’s three biggest banks had a combined 235.2 billion yen ($3.1 billion) of long-term loans outstanding to Olympus as of March 31, according to the Tokyo-based company’s June 29 financial statement. Olympus’s long-term borrowings have swelled to 527 billion yen in the past five years, when former Chairman Tsuyoshi Kikukawa made acquisitions including the $2.1 billion takeover of Gyrus Group Plc.

Olympus last week said it hid investment losses from the 1990s using inflated fees paid to advisers for the 2008 acquisition of the U.K. medical-device maker Gyrus and three other takeovers in Japan.

Shareholdings Cut

Nippon Life Insurance Co., Olympus’s largest shareholder, and its subsidiary Nissay Asset Management Corp. cut their combined stake in Olympus to 5.11 percent from 8.18 percent, according to a filing with Japan’s finance ministry today.

Olympus rose 1 percent to 747 yen at the 3 p.m. close on the Tokyo Stock Exchange, after gaining as much as 19 percent. The stock has lost 70 percent of its market value since Oct. 14, when Chief Executive Officer Michael C. Woodford was fired after he confronted Kikukawa about the payments made to advisers.

In an e-mail to employees today, Takayama said a hospital canceled its order for Olympus’s medical equipment because of the scandal.

“I understand people working in the front line will get a lot of criticism,” Takayama wrote in today’s message posted on the company’s internal website. “Let’s work together to get through this crisis.”

Rating Cut

The company’s long-term credit rating was lowered to BBB+ from A by Rating & Investment Information Inc. on Nov. 8, following the company’s admission that it concealed losses. The rating may be cut further, according to Yuta Ishinoda, an analyst at the Tokyo-based credit-risk assessment company.

“We are looking at the size of hidden loss outstanding, possible impairment of goodwill assets and whether lenders will maintain their support for the company,” Ishinoda said in a Nov. 9 interview. “There are possibilities that financial institutions will demand higher interest rates or collateral for their loans.”

Mizuho Financial Group Inc., Japan’s third-biggest bank, reduced its classification of loans outstanding to Olympus to an undisclosed level, citing Olympus’s cover-up, CEO Yasuhiro Sato said at a press conference in Tokyo on Nov. 14 to announce its first-half earnings.

Cash Reserve

Sumitomo Mitsui Financial Group Inc., Japan’s second- biggest lender, arranged loans for Olympus’s takeover of Gyrus, according to a Nov. 19, 2007, filing by the U.K. company.

Olympus needs to pay or refinance 30 billion yen of debts next year, according to data compiled by Bloomberg. That will increase to 77.5 billion yen the following year, the data show.

The BBB+ rating provides “sufficient credit strength and there is no significant impact on our businesses” from the rate cut, Takayama wrote in the letter. “Our businesses are expected to continue generating stable cash flow. In addition to that, we have about 260 billion yen in cash and deposits, a reserve enough to invest in our businesses as needed.”

Olympus’s stock has gained 62 percent in the past four days amid growing confidence that the company will avoid being delisted. The company was put on a list for possible delisting by the exchange last week after admitting it hid investment losses.

A decision on delisting will be made based on issues such as the size of the misstated accounts, the extent of wrongdoing and loss of confidence in the company, Yukari Hozumi, a senior associate for corporate strategy at the exchange, said by telephone yesterday.

--With assistance from Emi Urabe ????, Kazuyo Sawa and Takako Taniguchi in Tokyo. Editors: Teo Chian Wei, Kenneth Wong

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net


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