Sharp’s bond risk soars on equity offering delay

Sharp’s bond risk jumped the most in five months yesterday after a delay of its 100 billion yen ($1 billion) share sale, suggesting the company is struggling to develop a growth strategy.

The cost to insure Sharp’s bonds against default soared 77 basis points to 684 basis points on Aug. 22, the biggest increase since March 18, according to data provider CMA. The Markit iTraxx Japan index of default swaps for 50 companies climbed 2.2 to 102 on the day, while contracts of U.S. technology peers rose 8 to 125.

Sharp, which posted a record loss of 545 billion yen last fiscal period, needs to convince investors that it can generate profit, according to two people with knowledge of the matter. The sale may be postponed by about two months until November, one of the people said on Aug. 22.

Japan’s largest liquid-crystal display maker, which has 200 billion yen in convertible bonds maturing Sept. 30, has relied on loans and must report a net income this year started April 1 to maintain financing from its banks.

“The underlying concerns about their business persist, making the contracts sensitive to such news,” Takao Matsuzaka, a Tokyo-based credit analyst at Daiwa Securities. “The market is focusing on Sharp’s undercapitalization and LCD sales expansion in the second half.”

The extra yield investors demand to own Sharp’s 0.846 percent notes maturing 2014 jumped 15 basis points to 687 basis points on Aug. 22, the highest this month, according to data compiled by Bloomberg. The spread is down from 2,507 basis points at the start of the year.

Bloomberg