Fujitsu Risks Rating Cut By Borrowing for Chip Plant (Update3)
March 2 (Bloomberg) -- Fujitsu Ltd., which has $12.8 billion of debt, needs to fund a proposed semiconductor plant by selling equity or stakes in affiliates to avoid a cut in its debt rating, Moody's Investors Service said. Fujitsu shares and bonds fell.
The company, Japan's second-biggest telecommunications equipment maker, said Friday it's studying the size and location of a factory that will make chips from 12-inch wafers. Nancy Ikehara, spokeswoman at the Tokyo-based company, said no decision has been made on the plant, which the Nihon Keizai newspaper reported may cost 160 billion yen ($1.5 billion) to build.
Fujitsu needs a new plant to compete with NEC Corp., Hitachi Ltd. and other chipmakers to cater to increased demand for chips used in mobile phones and DVD recorders. Selling bonds or borrowing from banks would increase Fujitsu's debt burden, making it harder for the company to repay old borrowings, said Naoki Takahashi, an analyst at Moody's.
``Building a new chip plant may be a good opportunity for the company but it'll be bad for their credit rating if they finance it through debt,'' said Takahashi, Moody's electronics industry analyst, in a telephone interview from his Tokyo office. ``The company's equity base is so weak.''
The yield on Fujitsu's convertible bonds due May, 2009, jumped to 0.338 percent, from 0.241 percent yesterday and from 0.168 percent on Thursday, the day before Fujitsu announced it's considering building a new chip plant, according to Citigroup's bond prices. The yield is the highest since Feb. 4.
Fujitsu shares fell as much as 19 yen, or 3 percent, to a four-week low of 626 yen on the Tokyo Stock Exchange. The company was the third-worst performing stock on the 154-member Topix Electric Appliances Index.
Cutting Ratings
Moody's in January 2003 lowered its rating on Fujitsu's long- term debt two levels to Baa2, or its second-lowest investment grade. The outlook on the rating is stable.
Fujitsu's short- and long-term borrowings totaled 1.4 trillion yen ($12.8 billion) as of Dec. 31, Bloomberg data shows. Its net debt to equity capital was 164 percent compared with 99 percent at NEC, Japan's largest maker of personal computers.
The 12-inch wafer plant that Fujitsu is considering is more profitable than facilities that make the standard 8-inch wafers because the wafers yield more than double the number of chips.
Fujitsu, which was unprofitable in nine of the past 11 quarters, needs to build such a plant to stay competitive in the industry, said Satoru Oyama, an analyst at Lehman Brothers Japan Inc.
``The question is whether or not Fujitsu has the resources to build this kind of a plant,'' said Takahashi at Moody's.
The company could follow other Japanese semiconductor companies in funding new chip plants through share sales, Takahashi said.
Selling Assets
NEC sold shares three times last year, including the sale of stocks in two business units, to help reduce debt and fund new plants. After NEC announced the sale of new shares, Standard & Poor's last month raised its long-term rating on the company one level to BBB and short-term credit rating to A-2. Both ratings are two levels above non-investment grade.
Fujitsu raised 224 billion yen in the past year selling shares in Fanuc Ltd., the world's largest maker of industrial robots, to pare its debt.
While the Fanuc sale provided cash for Fujitsu, the company needs to diversify its business to provide more sustainable sources of revenue and lessen the impact of changes in demand, said Nagao Fusako, a Tokyo-based credit analyst at credit rating company Standard & Poor's.
``It's the company's strategy to take a risk and invest the money to improve their competitiveness and financial stability,'' Fusako said. ``Investment is probably necessary to improve or maintain their competitiveness in relation to other companies.''
Fujitsu is forecasting a 30 billion yen profit in the 12 months ending March 31, following a combined 505 billion yen in losses in the past two years.
Rating Cut
Fusako in August lowered her rating on Fujitsu's long-term debt by one level to BB+pi, based on publicly available information, saying the company's finances are the weakest among Japan's five integrated electronics companies and its rating may be cut unless its earnings improve and it reduces debt.
She confirmed that rating as BB+, one level below investment grade, in October. Fusako has a negative outlook on the company's debt, implying that Moody's may lower its rating.
Many institutional investors are prohibited by their fund investment guidelines from buying bonds that are rated below investment grade by ratings companies such as Standard & Poor's and Moody's.
The yield on Fujitsu's May 2009 bonds has surged from a negative yield of 0.20 percent on Oct. 21, the day S&P rated Fujitsu's long-term debt BB+, according to Citigroup's bond prices.
Reducing Debt
``We'd like to see reduced debt. Their leverage is relatively high,'' said Fusako. ``We'd like to see a fundamental improvement in the balance sheet.''
Fujitsu may sell bonds that are convertible into shares to fund the proposed plant, said equities analysts such as Yoshiharu Izumi at JP Morgan Securities Asia Ltd.
Fujitsu's shares have lost 4.6 percent since Friday's announcement that the company is considering building the new chip plant.
Investors are concerned the convertible bonds would dilute the value of the company's shares, said Izumi at JP Morgan.
Fujitsu sold its May 2009 convertible bonds 2002. The company's shares will have to rise 86 percent from yesterday's close before it is profitable for investors holding those bonds to convert them into Fujitsu stock. Fujitsu shares have plunged 44 percent in the past two years.
The company has 15.6 billion yen of convertibles bonds due this month with a conversion price of 998 yen. The shares need to rise 55 percent from yesterday's close before investors can profit from converting the bonds. |
