Friday November 16, 2012

Sony tumbles on convertible bonds issue

TOKYO: Shares of Sony Corp tumbled over 10%, a day after the consumer electronics maker said it will raise 150 billion yen (US$1.9bil) through a sale of convertible bonds to help finance a series of investments.

Sony, beset with falling demand in its core TV business and the growth of rivals like Apple Inc and Samsung Electronics Co, has invested in an assortment of businesses from medical equipment to cloud gaming after CEO Kazuo Hirai took the helm in April.

On Wednesday, the maker of Vaio laptops and PlayStation game consoles said it would issue the five-year bonds convertible into shares to finance an investment in Olympus Corp, the acquisition of US firm Gaikai Inc, ramping up in CMOS (complementary metal oxide silicon) image sensors used in devices like digital cameras and to repay debt.

Sony shares plunged 10.7% to 777 yen. If the stock price were to finish the day with such losses, the shares would hit their lowest close since 1980, according to Thomson Reuters Datastream.

“Worries of dilution are pushing shares down today,” said Katsuhide Takahashi, a credit sector specialist at Citigroup in Tokyo.

If all the convertible bonds were exchanged for Sony shares, it would lead to a dilution of existing share holdings by as much as 15.6%.

“In a way, the fact that Sony can issue corporate bonds and access the market is positive, in comparison to its peers that can't even do that like Sharp. From an equity perspective, there are worries of dilution but on a credit front this is positive,” Takahashi said.

Rival Sharp Corp, has effectively been shunned by the debt capital markets because of its massive losses and falling market share, forcing it to turn to its banks for a bailout in September and consider capital tieups.

A Hong Kong-based credit analyst said some investors were likely selling Sony shares in favour of the convertible bonds, which protect their investment if the share prices fell but still offered upside in the event a rally.

Despite a zero coupon, which reflects Japan's near-zero rate environment, the bonds would be attractive given a low conversion premium, set at 10% above Wednesday's close at 870 yen.

“It would be a safer bet for stockholders to buy the convertible bond as its downside is better protected relative to the equity,” he said.

Convertible bond arbitrage traders and hedge funds could also use the bonds to hedge short selling Sony shares.

“The cost of shorting Sony stock would be low and it will be easy to short, so this trade will be attractive,” he said. - Reuters

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