Sony Corp. (6758), the Japanese electronics maker reeling from four consecutive annual losses, fell to the lowest level in more than 32 years in Tokyo trading after offering its first convertible bonds in almost a decade.
The shares dropped as much as 11 percent to 772 yen and changed hands at 791 yen as of 2:23 p.m. in Tokyo. That extended the year-to-date slump to 44 percent, valuing the company at 780 billion yen ($9.7 billion).
The maker of Bravia TVs offered 150 billion yen of zero- coupon convertible bonds maturing in five years with a conversion price of 957 yen, or 10 percent above the stock’s closing price in Tokyo yesterday. The proceeds will be used to fund acquisitions and expand its imaging-sensor facilities, the company said in a statement.
“There’s a risk of dilution of equity given the amount on offer, relative to Sony’s market capitalization,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo with an underperform rating on the company. “If you consider the potential for the stock to rise, shareholders may be thinking the upside is uncertain. That’s probably behind today’s decline in share price.”
The first convertible bond sale from Sony since 2003 comes as the maker of Walkman music players is projected to lose money at its main television business for a ninth straight year. Chief Executive Officer Kazuo Hirai is cutting 10,000 jobs and selling assets as he focuses on mobile devices, games and digital imaging to turn around the company amid competition with Apple Inc. (AAPL:US) and Samsung Electronics Co. (005930)
The zero-coupon notes due in November 2017 may be exchanged for stock if Sony’s shares rise above the conversion price.
The sale would add 156.7 million shares, or 15.6 percent of shares currently outstanding, if all were converted, Yuji Fujimori, an analyst at Barclays Plc, said in his report today.
“We expect the share price to remain below the conversion price in the near term owing to concerns about dilution risk,” Tokyo-based Fujimori said.
The market valuation of Sony, worth more than $120 billion in 2000, compares with the $505 billion valuation of Apple and $180 billion of Suwon, South Korea-based Samsung. Shares of Sony’s domestic competitors Panasonic Corp. (6752) and Sharp Corp. (6753) have also declined in value this year.
Credit Default Swap
Sony’s credit risk declined to the lowest in almost two months after reaching a record high earlier this month.
The cost to insure the debt of Sony for five years against non-payment dropped 30.6 basis points to 391 basis points as of 1:06 p.m. in Tokyo, according to intraday prices from data provider CMA. That’s set for the lowest closing level since Sept. 19, CMA prices in New York show.
Sony’s long-term credit rating have been downgraded twice by Moody’s Investors Service since August, while Standard & Poor’s cut its rating once in September as the maker of Walkman music players struggles without a hit product to challenge Apple.
The maker of PlayStation game consoles will use 60 billion yen of the proceeds to invest in CMOS image sensors, 50 billion yen to repay short-term debts for acquiring shares of Olympus Corp. (7733), 10 billion yen to repay borrowings for acquiring Gaikai Inc. and 30 billion yen to repay bonds maturing next year, according to the statement.
JPMorgan Chase & Co., Goldman Sachs Group Inc., Nomura Holdings Inc. and SMBC Nikko Capital Markets Ltd. were hired to manage the sale, which will be in overseas markets excluding the U.S., according to Sony’s statement yesterday.
Morgan Stanley, Citigroup Inc. and Mizuho Financial Group Inc. were also hired as underwriters, according to a regulatory filing today.
Sony last sold bonds in March, when it raised 55 billion yen from a two-part offering including 45 billion yen of 0.664 percent five-year notes, not convertible to shares, priced at a spread of 36 basis points more than government debt, according to data compiled by Bloomberg.
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