Panasonic comeback seen in biggest sale to Japan's institutional investors since 2011

[TOKYO] Panasonic Corp completed the biggest bond sale to Japan's institutional investors since 2011 after the electronics maker forecast its best profit in seven years.

The 400 billion yen (S$4.6 billion) offering included 10- year notes with a yield of 0.934 per cent, compared with the 0.61 per cent average for Japanese debt maturing between seven and 10 years, Bank of America Merrill Lynch Index show. The cost to insure Panasonic debt from default has slumped to 39 basis points, from as high as 506 in November 2012, lower than the 89 for Sony Corp and the 701 for Sharp Corp.

Panasonic predicts 175 billion yen in net income this fiscal year, after 1.5 trillion yen in combined losses in the two years to March 2013 shook investor faith in the 97-year-old company. Moody's Investors Service last month upgraded the Osaka-based manufacturer, citing its competitive market position in the housing- and automotive-related businesses. By contrast, Sharp is considering "drastic reform" to reduce losses in its television operations.

"Panasonic has undertaken large-scale restructuring and pivoted away from consumer electronics to focus on business-to- business opportunities," said Yoshihiro Nakatani, a senior fund manager in Tokyo at Asahi Life Asset Management, which had the equivalent of US$7.7 billion in assets as of March 2014. "The company has followed faithfully its recovery plan and you are seeing that in its earnings."

In April, Panasonic reported its first full-year profit since 2011 after company president Kazuhiro Tsuga halted production of money-losing plasma TVs and stopped developing smartphones for consumer use, as part of his strategy of targeting businesses and reducing reliance on consumer goods. The company's stock has gained more than 17 per cent over the past 12 months.

By contrast, Sharp, once synonymous with cutting-edge TVs and home electronics, is considering options to restructure its liabilities, including a debt-for-equity swap, said people familiar with the matter last week. They asked not to be identified because the talks are private.

Sharp had net debt of 723.8 billion yen at the end of December, according to data compiled by Bloomberg. In contrast, Panasonic had a cash surplus of 241.6 billion yen at the end of 2014 after net debt reached a high of 1.25 trillion yen in March 2012.

"It's been a week where the fortunes of these two electronics makers have clearly diverged," Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA, said in a report last week. "Sharp needs to undertake root-and-branch restructuring." In the latest sign of success with its efforts to move beyond consumer electronics, Panasonic earned 80.3 billion yen in operating profit from its automotive and industrial systems segment in the nine months to December. That made it the single biggest contribution to profit. The company's eco-solutions business, which includes lighting and housing-related materials, contributed 75.7 billion yen in profit, more than three-and-half times the audio visual business.

As part of the company's shift away from consumer electronics, it set up a manufacturing unit in the US at Tesla Motors Inc's battery "gigafactory" in Nevada. The manufacturer, which was started in 1918 by Konosuke Matsushita, his wife and brother-in-law in a two-floor house, is also developing self-driving technologies for cars, including parking assistance.

Panasonic will use most of the bond proceeds for capital expenditure or acquisitions in growth businesses of housing and auto-related businesses segments, said Chieko Gyobu, a company spokeswoman.

Moody's raised Panasonic one level to Baa1 on Feb 19 saying it expects the company to improve its profitability in the next 12 to 18 months after its restructuring efforts had been "very effective."

"Panasonic's creditworthiness has improved above and beyond its ratings profile," said Hidetoshi Ohashi, the chief executive officer of Japan Credit Advisory Co in Tokyo. "Investors judged favorably that the company was effectively debt free."

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