Struggling Japanese electronic giants to raise $3b in ‘garage sale’


Panasonic’s fixed assets of $21 billion are around 30 per cent more than those of Apple, and are almost double the company’s market value. Pic: Bloomberg

Tokyo: Panasonic, Japan's struggling maker of Viera brand TVs, owns more than 10 million square metres of office and factory space, dormitories for its workers and sports facilities for its rugby, baseball and women's athletics teams.

As it battles for Christmas shoppers' wallets in the year-end holiday season, the sprawling electronics conglomerate is also seeking buyers for some of those properties to trim its fixed costs and improve cashflow at a time of intense competition, particularly from South Korean rivals such as Samsung Electronics.

Japan's other troubled TV makers, Sony and Sharp, are also selling buildings and businesses in a giant 'garage sale' that could raise a combined $3 billion. Panasonic plans to raise $1.34 billion from offloading property and shares in other Japanese companies by March-end, the group's chief financial officer Hideaki Kawai said.

"We have a lot of land and buildings in Japan and overseas," he said in an interview at the company's head office in Osaka, in western Japan. He declined to list which properties would go on the block, but said most are in Japan. 

24-storey Tokyo block
Included is a 24-storey central Tokyo block built in 2003 with more than 47,300 square metres and housing 2,000 Panasonic workers a source familiar with the plan said. Kawai added that Panasonic would raise about a quarter of the sell-off funds by getting rid of shares it owns in other companies - a common practice of cross-shareholdings in Japan.

The proceeds would help bolster free cashflow to ¥200 billion ($2.43 billion) for the business year to March, Kawai said, and allow Panasonic to reduce its debt and maintain its crucial research and development effort as it revamps its business portfolio. It will sell more assets in the year starting in April if cashflow dips below ¥200 billion, Kawai added. Panasonic president Kazuhiro Tsuga has promised to shut or sell  businesses operating at below a 5 per cent margin. Those sales could start as soon as April.

Panasonic's fixed assets of $21 billion are around 30 per cent more than those of Apple, and are almost double the company's market value. The company, founded almost a century ago as a small electrical extension socket maker, trades at around half its book value which includes intangible assets such as patents. Sony trades at 39 per cent of book, Sharp at 30 per cent.

The fixed assets buildings, land and machinery of the three companies that were not so long ago a byword for innovation in household gadgetry total around $42 billion, while their combined market value is $24 billion.

Cashflow is king
The three firms have been downgraded by credit ratings agencies, making it tougher to raise funding on capital markets, and making asset sales more urgent. Selling assets "is good in terms of their credit ratings because, for all three, it will lower fixed costs and they can reduce their capex requirements. Eventually, this could improve operating margins and, more importantly, cashflow," said Alvin Lim, an analyst at Fitch Ratings in Seoul.

"The gap with Korean makers seems to be widening. It's going to be very difficult for them to regain their top-tier position," said Fitch's Lim. As the three Japanese firms, all under new leadership, have sketched out restructuring plans, the cost of insuring their debt against defaulting in 5 years has dropped from spikes just a month ago. Credit default swaps for Sharp and Sony are down to levels last seen 3 months ago, while Panasonic's have dropped 40 per cent in the past month.

Three paths  

While Panasonic is looking to revamp its business around batteries, auto parts and household appliances, Sony is doubling down on smartphones, gaming and cameras. Sharp, meanwhile, is focusing on display screens and is forging alliances with the likes of Taiwan's Hon Hai Precision Industry and US chipmaker Qualcomm.

Sony may also take the real estate sale route to raise much-needed cash, with a possible sale of its 37-storey New York headquarters, dubbed by New Yorkers as the 'Chippendale' because of its design that is reminiscent of the period English furniture. Selling that jewel could raise $1 billion, media have reported.

The maker of Vaio laptops, PlayStation gaming consoles and Bravia TVs may also sell its battery business, which makes lithium ion power packs for tablets, PCs and mobile phones.
The company has been approached by investment banks offering to sell the unit, which employs 2,700 people and has three factories in Japan and two overseas assembly plants. Sony values the business's fixed assets at $636 million. 

Potential buyers could include BYD Company, a Chinese carmaker backed by billionaire investor Warren Buffett, and Taiwan's Hon Hai which part owns Sharp's advanced LCD panel plant in Sakai, western Japan, and is in talks to buy TV assembly plants in China, Malaysia and Mexico for $667 million, Japan's Sankei newspaper has reported.

Sharp has mortgaged nearly all its properties to secure a $4.6 billion bailout from Japanese banks and so has few assets to offer in a grand garage sale. Instead, it's selling part of the garage. Hon Hai, which earlier this year agreed to invest in Sharp before its stock slumped in the wake of record losses has said it remains interested in taking a stake. "Whatever they can get to get through this fiscal period by scaling down their operation is a critical step for them to remain afloat," said Fitch's Lim.l


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