Sony to Sell $1.9 Billion of Convertible Bonds to Expand
Sony Corp. (6758), the Japanese electronics maker reeling from four consecutive annual losses, plans to raise 150 billion yen ($1.9 billion) from convertible bonds to fund an expansion in its first sale of the security in a decade.
Sony will sell zero-coupon convertible bonds maturing in five years to fund acquisitions and the expansion of imaging- sensor facilities, the company said in a statement today. The conversion price will be set by tomorrow, according to a person familiar with the matter, who declined to be identified because the information is private.
The sale, the first convertible bond from Sony since 2003, comes after the share price plunged to near three-decade lows earlier this year as Sony suffers losses at its main television business. 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 Sony, whose shares dipped to their lowest since 1980 earlier this month.
“Convertible bonds was probably the only option for Sony,” said Tadashi Fujii, an analyst at Fisco Ltd., a Tokyo- based research company. “Its credit ratings have been cut and an equity finance would lead the shares to decline because of the dilution.”
The zero-coupon notes due in November 2017 may be exchanged for stock if Sony’s shares rise above a conversion price of 10 percent to 20 percent more than today’s closing price, the person familiar with the matter said.
Sony, the maker of Cyber-shot cameras and Bravia TVs, rose 1 percent to close at 870 yen in Tokyo trading today. The stock has slid 37 percent this year after slumping 53 percent last year.
The shares fell to 856 yen in Tokyo trading on Nov. 12, their lowest this year and since April 18, 1980. Sony, worth more than $120 billion in 2000, is now valued at about $11 billion. Apple Inc. (AAPL) is valued at $511 billion and Samsung Electronics Co. is at $184 billion.
The transaction will be the first convertible sale since 2003, according to Mami Imada, a spokeswoman for Sony.
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 the statement.
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. The spread rose to a record 154.9 basis points on Nov. 12 before falling to 154.5 yesterday, according to JS Price data.
Earlier this month, Sony had its credit rating cut to the lowest investment grade by Moody’s Investors Service, which cited falling demand for its TVs and cameras.
The long-term credit rating was cut one level to Baa3 from Baa2, Moody’s said Nov. 9, assigning a negative outlook. The short-term rating was cut to Prime-3, also the lowest investment grade, from Prime-2.
Earlier this month, Sony posted a quarterly loss of 15.5 billion yen, its seventh straight loss. The company kept its forecast to report its first annual profit in five years.
Sony in August acquired Gaikai, a California-based company with expertise in transmitting data between cloud servers and users, for about $380 million as it prepares to expand cloud- based entertainment services. Cloud computing is among the focus areas of Sony’s research and development, Shoji Nemoto, head of Sony’s corporate research and development, said in August.
Sony sold a chemical-products making unit, stakes in two display-making ventures and invested in Olympus to revive growth after racking up 692 billion yen in losses selling TVs in the past eight years.
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Sony stock since Kaz Hirai "way forward" presentation in April of 2012 (7 months).